Contracts Law

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CONTRACT

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A valid contract consists of Offer, Acceptance, Consideration and Lack of defenses.

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OFFER

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An offer is a manifestation of present contractual intent, communicated to an identified offeree, containing definite and certain terms.

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TERMINATION OF OFFER

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Irrevocable offers include an Option Contract, Merchant's Firm Offer (UCC 2-205), Detrimental Reliance, and a Unilateral Contract.

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OPTION CONTRACT

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An offer supported by consideration. If option doesn't specify a time, option will remain open for a reasonable time.

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MERCHANT'S FIRM OFFER

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A writing signed by a merchant offeror which gives assurance that the offer will be held open is not revocable, for lack of consideration, during the time stated. If no time is stated, then for a reasonable time, not to exceed 3 months.

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DETRIMENTAL RELIANCE

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If the offeree relies on the offer and the reliance is detrimental, reasonable, foreseeable, and substantial, then the offer must stay open for a reasonable time.

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UNILATERAL CONTRACT

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An offer for a unilateral contract is irrevocable once performance has begun. The offeror must allow the offeree a reasonable amount of time to complete performance once performance has begun.

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REVOCATION (TERMINATION BY OFFEROR)

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Offeror communicates to the offeree that the offeror no longer wishes to be bound to the offer.

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INDIRECT REVOCATION

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Occurs if an offeree receives correct information form a reliable source that the offeror no longer wants to be bound to the offer.

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REJECTION (TERMINATION BY OFFEREE)

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Offeree communicates to the offeror that the offeree is no longer interested in the offer. A counteroffer acts as a rejection, and a conditional acceptance is a counteroffer.

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TERMINATION BY OPERATION OF LAW

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Offer will lapse after a reasonable time. Reasonable time is determined by: Market Conditions, Nature of the subject matter, Trade custom and usage, etc. In face to face negotiations, unless there are words to the contrary, the offer will terminate when the parties leave each other's presence.
Death or insanity terminates offer (except option contract). Destruction of subject matter terminates offer. Supervening illegality terminates offer.

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ACCEPTANCE

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Assent to the terms of an offer.

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METHODS OF ACCEPTANCE

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Bilateral Contract: Promise to perform.
Unilateral Contract: Complete performance plus notice.
UCC 2-206: Promise or performance; shipment of nonconforming goods will be an acceptance and a breach unless there is a letter of accommodation.

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MODE OF ACCEPTANCE

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Manner required by offer, otherwise any reasonable manner. UCC 2-206: any medium reasonable under the circumstances. Manner which offer was sent.

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MAILBOX RULE

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Acceptance is effective upon dispatch. Limits on rule include: Post acceptance rejection: Accceptance is sent first, then rejection. Regjection is received first. Mailbox Rule applies (contract is formed). Exception - offeror changes position based on rejection, then contract is not enforceable.
Post Rejection Acceptance: Rejection is sent first, then acceptance. Mailbox Rule does not apply - whichever gets to offeror first.

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ACCEPTANCE WITH ADDITIONAL TERMS

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Under Common Law, the acceptance must be a mirror image of the offer. Any additional or missing term would result in a rejection and a counteroffer.

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LAST SHOT RULE

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The last expression before performance controls: Where parties exchange rejections/counteroffers. One party does not return a rejection/counteroffer, but performs. Courts find an implied acceptance by performance.

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UCC 2-207

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An acceptance with additional or different terms is still a valid acceptance. Even under the UCC a conditional acceptance is a rejection/counteroffer.

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CONSIDERATION

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Legally sufficient, bargained for exchange, which induces current performance, detriment to the promisee, and a binding obligation on both parties.

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"LEGALLY SUFFICIENT"

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Legal adequacy is generally irrelevant. Not a token amount, and not a sham agreement.

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"BARGAINED-FOR EXCHANGE"

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Both parties give something in exchange, eliminates gifts.

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"INDUCES CURRENT PERFORMANCE"

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Past consideration is NO consideration, and moral obligation is no consideration. Exception - Debts barred by a technical defense (SOF, SOLimit.,Discharge in Bankruptcy) will be enforceable if reaffirmance of the debt occurs in writing. Debtor will only for the amount reaffirmed.

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PREEXISTING DUTY RULE

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Only applies to common law contracts, and is not applicable to third parties.

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CONSIDERATION SUBSTITUTES

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Seals - UCC and statutory rules elimated seals as valid consideration substitute.
Promissory Estoppel or detrimental reliance is a substitute when: Substantial, foreseeable, and reasonable reliance. Enforcement limited to only prevent an unjust result.

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DEFENSES TO FORMATION
"SI IM DUUM"

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Statute of Frauds, Incapacity, Illegality, Misrepresentation/Fraud, Duress, Undue Influence, Unconscionability, Mistake.

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STATUTE OF FRAUDS
"MY LEGS"

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Certain contracts need to be evidenced by a writing to be enforceable. These contracts are governed by the Statute of Frauds:
Marriage
Contracts that cannot be completed in one YEAR
Land Contracts: Can be removed if you find any two of the following: Make Payment, Move on the land, or Make improvements.
Executor's Promises
Goods $500 or more: exceptions for Specially manufactured goods, Part performance or acceptance, signed by party to be charged, merchant's confirmatory memorandum.
Surety.

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SATISFACTION OF SOF

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The SOF can be satisfied by a writing that evidences the existence of a contract (parties and subject matter). Only the signature of the party to be charged is required. Approach: See if it appears that the contract falls unde the SOF; See if the contract can be taken out by some exception; See if the SOF is satisfied.

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INCAPACITY

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Minors: Contracts with minors are voidable at the option of the minor unless affirmed after reaching age of majority or not disaffirmed after 30 days of reaching majority, or contracts regarding necessities.
Mental, and Intoxication.

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ILLEGALITY

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1. When the subject matter of a contract is illegal, then the contract is void.
2. When the subject matter of a contract is legal but it is to be used for an illegal purpose, then the contrat is voidable at the option of the innocent party.
3. Contracts with non-competition clauses may be deemed illegal restraints on trade - Must be reasonable in time and geographical scope. Invalid clause will result in courts blue penciling contract.

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MISREPRESENTATION/FRAUD

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A misrepresentation of a material fact with reliance. A. Includes innocent, negligent, or intentional misrep.
B. Intentional fraud requires scienter (making statement knowing falsity or reckless disregard). C. Requires reasonable and actual reliance. Where there is fraud in execution of K, K is void. Where there is fraud in inducement of K, the K is voidable at the option of the innocent party.

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DURESS

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Physical Duress: Use of force/trheat of force to induce someone to enter into a K. Contract is void.
Economic duress: Use of wrongful threats of breach to induce someone to enter into a K. K is voidable.

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UNDUE INFLUENCE

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1. The improper use of a position of trust or confidence; 2. Victim must be susceptible to influence; and Is in fact influenced. 4. Contract is voidable by victim.

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UNCONSCIONABILITY

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Conduct will be considered unconscionable where there is present procedural and substantive unconscionability. (Procedural - Lack of meaningful choice) (Substantive - Unreasonably favors one party).
Must be unconscionable at the time of formation, and the contract is voidable.

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MISTAKE

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Mutual: Occurs when both parties are mistaken as to a material fact. Voidable at discretion of adversely affected party.
Unilateral: Occurs when one party is mistaken as to a material fact. Not a defense unless the nonmistaken party knew or should've known about the mistake. If mistake is in judgment - no relief. Rule applies if mistake was made by intermediary.

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MODIFICATION

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Requires mutual assent to terms of the modification. UCC 2-209. Addiditonal consideration needed under the common law. Under UCC, no consideration needed so long as modification is requested in good faith, modification may need to satisfy SOF unless waiver and estoppel have occurred.

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ACCEPTANCE WITH ADDITIONAL OR DIFFERENT TERMS - UCC 2-207

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As between merchants, the additional terms become part of the contract unless the offer limits acceptance to the terms of the offer, the offeror objects within a reasonable time, or the terms materially alter the contract. If at least one party is a nonmerchant, the additional terms will be ignored and not become part of the contract. If the term doesn't become part of the contract, then the terms result ina proposal for the additional terms that require express assent.

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DIFFERENT TERMS

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Because 2-207 only refers to additional terms, the majority of courts believe that it doesn't apply to different terms. Majority rule is that the different terms get knocked out and one applies gap fillers, custom and usage, and course of dealing or performance. One state, CA, treates different terms the same as additional terms.

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PAROL EVIDENCE RULE

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Prior written or oral, and contemporaneous oral expressions that contradict, modify, or vary contractual terms are inadmissible if the written contract is intended to be a complete and final expression of the parties (Integrated Written Contract). A merger clause strengthens the presumption that writing is final. Exceptions for Ambiguity, Fraud, duress, mistake, illegality or incapacity, condition precedent to contract having any legal effect.

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WILLISTON TEST

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If the parties would have normally included the merger clause and didn't then the provision will not become part of the contract.

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INTENDED THIRD PARTY BENEFICIARIES

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Intended TPB are usually named in the contract, the performance runs directly to them, and there is a relationship between the TPB and the promisee.

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INCIDENTAL TPB

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Have no rights.

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CREDITOR BENEFICIARY

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The person becomes a TPB to satisfy an underlying obligation by the promisee to the third-party beneficiary.

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DONEE BENEFICIARY

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The person becomes a TPB because of a gift from the promisee to the TPB.

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VESTING RIGHTS OF TPB

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A Third Party Beneficiary's rights will vest if the third party is asked to assent to the contract terms; the third party changes their legal position in reliance on the promise; or the third party sues to enforce the promise. TPB can sue promisor for enforcement or the promisee on the underlying obligation if the TPB is a creditor TPB.

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ASSIGNMENT OF RIGHTS

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Valid unless they materially alter the obligor's duty or risk, or unless the assignments are prohibited by law.
The assignee becomes the real party in interest. The Obligor must deal directly with the assignee once notice is given. Obligor can use any defenses against assignee that could've been used against assignor. If there's more than one assignement of same right, then revocable assignments are revoked by subsequent assignments, and irrevocable assignments compete first-in-time, first-in-right unless subsequeent assignee takes without notice of prior assignment and gets judgment, payment, token chose, obtains a novation or estoppel.

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DELEGATION OF DUTIES

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Delegations are generally valid unless the duties involve personal judgment and/or skill or where the delegation would materially change the obligee's obligations.
Delagator remains a surety for delegatee. Obligee may sue delagator as a surety or the delegatee if the delegation was for consideration under a TP promise with the delegatee being the promisor and the obligee being the TPB.

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CONDITION

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An event that determines if and when a duty either arises or is extingushed. Conditions must be excused or satisfied to have an absolute duty to perform. How?: Expressed, Implied and Constuctive. When?: Precedent, Concurrent and Subsequent.

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EXCUSE OF CONDITION

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Failure to cooperate; Prospective inability to perform; Anticipatory repudiation; Waiver (voluntary relinquishment of known right - May be retracted); Estoppel (Detrimental Reliance upon waiver - Party is estopped from retracting waiver)

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SATISFACTION OF CONDITION

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Complete satisfaction; Substantial satisfaction; Doctrine of Divisibility.

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DOCTRINE OF DIVISIBILITY

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The performance of each party is divided into two or more parts under the contract; the number of parts due from each party is the same; and the performance of each part by one party is the agreed equivalent of the corresponding part by the other party.

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ANTICIPATORY REPUDIATION

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When one party communicates unequivocally to the other party that they will not perform when performance becomes due. Remedies: Sue immediately; Consider the contract cancelled; Wait until performance date and sue if a breach occurs. If not unequivocal, but a party has reasonable grounds for insecurity: UCC Right to Adequate Assurances (UCC 2-609), Common Law - must wait until performance date or communication of unequivocallity.

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PERFORMANCE

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The party must discharge the duty, perform the duty, or they will be in breach.
Duty to perform can be discharged upon: MODIFICATION, ACCORD AND SATISFACTION, NOVATION, MUTUAL RESCISSION, IMPOSSIBILITY, IMPRACTICABILITY, FRUSTRATION OF PURPOSE, OCCURENCE OF A CONDITION SUBSEQUENT.

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MODIFICATION

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Common Law requires additional consideration by both parties. UCC does not as long as modification is requested in good faith. SOF may apply - see UCC 2-209.

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ACCORD AND SATISFACTION

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Accord is the agreement, Satisfaction is the performance.

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NOVATION

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An agreement by all parties to extinguish contractual duties between the original parties and replace them with a new contract.

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MUTUAL RESCISSION

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Must be in writing if the Statute of Frauds and/or the UCC apply.

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IMPOSSIBLITY

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Death or physical incapacity of person necessary to effectuate the contract; Illegality; Destruction of subject matter by no fault of either party before risk of loss passes.

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IMPRACTICABILITY

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Extreme and unreasonable difficulty that was unanticipated - Only under UCC and a minority of jurisdictions.

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FRUSTRATION OF PURPOSE

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Supervening act that was not reasonably foreseeable at the time of formation which almost completely destroys the purpose of the contract that was known at the time of formation.

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BREACH

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When a party has an absolute duty to perform and they do not discharge or perform it, they are in breach.

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MATERIAL V. MINOR BREACH

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If a party has not received the substantial benefit of the contract, then the breach is material. If a party has received the substantial benefit of the contract, then the breach is minor.

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REMEDIES FOR MATERIAL BREACH

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Nonbreaching party may suspend performance and sue for damages.

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REMEDIES FOR MINOR BREACH

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Nonbreaching party must perform their obligations but may offset payment by the amount the minor breach caused.

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TIMELINESS OF PERFORMANCE

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Failure to perform by the time stated within the contract is generally not a material breach if performance is rendered within a reasonable time. However, if the nature of the contract makes timely performance essential or if the contract expressly privides that time is of the essence, then failure to perform on time is a material breach.

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DAMAGES AND REMEDIES

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Expectation damages, Consequential damages, Incidental, Liquidated, NO Punitive, Specific Performance, Quasi-Contractual Relief.

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DUTY TO MITIGATE

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A party cannot recover for damages that are avoidable.

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COMPENSATORY DAMAGES

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Damages involving Compensation

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EXPECTATION DAMAGES

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"Benefit of the Bargain".
1. Market price minus contract price.
2. Cover price minus contract price.
3. Contract price minus party's savings by not performing (profit).

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CONSEQUENTIAL DAMAGES

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Damages that are consequenses resulting from nonperformance are available only if foreseeable at time of formation.

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INCIDENTAL DAMAGES

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Damages that are incurred casually and in addition to the regular or main amount.

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PROOF OF DAMAGES

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Damages must be proven to a degree of certainty. Damages may be too speculative. If damages cannot be proven, then the plaintiff may recover reliance damages equal to the cost of plaintiff's performance or to put the plaintiff in the same position as if the contract was never formed. Plaintiff may recover nominal damages where a breach is shown byt no actual loss is proven.

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LIQUIDATED DAMAGES

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Actual damages are difficult to ascertain at the time the contract was formed; the amount is a reasonable approximation of the damages; and it is not a penalty. UCC 2-2718 considers actual damages.

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SPECIFIC PERFORMANCE

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Subject matter must be unique or money damages inadequate. Equitable defenses apply.
(1) Latches - when a party delays seeking equitable relief and that delay prejudices the other party.
(2) Unclean hands - when a party seeking equitable relief has committed some wrongdoing related to the same transaction.
(3) Bona fide purchaser cuts off equitable relief.

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QUASI-CONTRACTUAL RELIEF

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Received when Plaintiff has conferred a benefit on defendant, and plaintiff reasonably expected to be paid, and defendant realized unjust enrichment if plaintiff not compensated.

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RECOVERY FOR QUASI-CONTRACT

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Contract price is not the measure of recovery. Contract price is a ceiling if plaintiff is on default or contract recovery is barred by Statute of Frauds. Prevents unjust enrichment - Defendant's benefit, Plaintiff's Detriment.