Contracts -- Mbe

Front 1

Armadillos From Texas Play Rap Eating Tacos

Back 1

Applicable law
Formation of Contracts
Terms of contracts
Performance
Remedies for unexcused non-performance
Excuse of nonperformance
Third-party problems

Front 2

Definition of a Contract

Back 2

Legally enforceable agreement.

Two steps for finding contract:

(1) agreement and
(2) legally enforceable

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Definition of quasi-contract

Back 3

Equitable remedy (NOT governed by contract law).

Elements:
1) P has conferred benefit on D AND
2) P reasonably expected to be paid AND
3) D realized unjust enrichment if P NOT compensated.

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Bilateral Contract

Back 4

Results from offer that is open as to method of acceptance

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Unilateral Contract

Back 5

Results from offer that expressly requires performance as only possible method of acceptance.

On bar exam:
Question involves a reward, prize, contest OR
Offer expressly requires performance for acceptance

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Applicable law in Contracts

Back 6

Common Law: Case Law as developed by courts in 50 states

UCC Article 2: Only applies if contract primarily for sale of goods (tangible goods)

If Mixed deal: Look for whether goods or services are THE important part.
Contracts are entirely one or the other EXCEPT when contract divides payment

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Stages in the Formation of a Contract

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1) Initial communication (“offer”)
2) What happens after initial communication (“termination of offer”)
3) Who responds and how she responds (“acceptance”)

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General test for Offers

Back 8

Manifestation of Intent to contract (by words or conduct).

Ask: If reasonable person in offeree’s position believes assent creates a contract.

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Missing Price terms in an offer for sale's contract

Back 9

Common Law (real estate sales): Offer requires price and description

UCC Art. 2: Offer does NOT require price (just intent)

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Requirements Contracts/Output Contracts:

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Contract under UCC can state quantity of goods to be delivered in terms of:

1)buyer’s requirements
2)seller’s output or in
3)terms of exclusivity.

Key terms: “All” “Only” “Exclusively” or “Solely”

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Advertisments

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Generally not an offer.

Exceptions:
1) offers in the nature of reward
2) offers stating quantity and expressly indicate who can accept -- E.g., “One Fur Coat $100 – First Come, First Serve”

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Four (4) Methods of Terminating Offers

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1) Lapse in Time
2) Revocation by Words or Conduct of Offeror
3) Rejection by Words or Conduct of Offeree
4) Death or Incapacity of either party prior to acceptance

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Lapse in Time Rule

Back 13

All offers subject to time limit (Time stated or reasonable time).

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How can an offer be revoked?

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1) Unambiguous statement to offeree of unwillingness/inability to contract
2) Unambiguous conduct of unwillingness/inability that offeree aware of

NOTE: It is irrelevant how an offeree is made aware of a revocation. BUT, offers made to others NOT indicative of unwillingness/inability to sell.

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When can an offer be revoked?

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Revocation generally effective up UNTIL offer has been accepted.

CANNOT be revoked after acceptance.

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Revocation sent through mail...

Back 16

NOT effective until received.

It is effective upon receipt of mail, not upon the reading of it.

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Irrevocable Offers (4):

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1) Options (promises to keep an offer open that are supported by consideration)
2) Firm Offer Rule (an offer to buy goods, written promise to keep open, party is a merchant).
3) Detrimental Reliance by offeree that is reasonably foreseeable.
4) Unilateral contracts -- start of performance = offer is irrevocable (mere preparation not enough)

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Three Methods of Indirect Rejection:

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1) Counter Offer (terminates original offer - becomes new offer)
2) Conditional Acceptance (similar to counter offer)
3) Additional Terms (Common law Only)

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Mirror Image Rule

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“Acceptance” that adds new terms is treated like counteroffer rather than acceptance.

Terms of acceptance must "mirror" terms of the offer.

NOTE: Does not apply under UCC

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Acceptance with Additional Terms under UCC 2-207

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Under UCC, response to offer which adds new terms (but does not condition acceptance), is generally treated as acceptance (Seasonable expression of acceptance)

Only applies if both parties are merchants and if new terms do not materially change the offer.

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General Rule regarding Death or Incapacity of Contract Party

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Death or incapacity of either party after offer but before acceptance terminates offer:

Exceptions:
(i) Option or
(ii) Part performance of unilateral contract offer

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General Approach to Acceptance Issues

Back 22

Examine offer for
1) who can accept offer and
2) how it can be accepted.

Focus under Acceptance is on the offeree

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Who can accept an offer?

Back 23

Generally only
(i) person who knows of offer
(ii) who is person to whom it was made.

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Assignability of Offers/Options

Back 24

General Rule:
Person to whom offer is made generally can’t reassign the offer to another

But:
Unlike offers, options are assignable.

Front 25

Five (5) Possible Fact Patters for Acceptance...

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1) Offeree fully performs
2) Offeree starts to perform
3) Offeree promises to perform
4) Offeror and Offeree in Different Places w/Conflicting Communications
5) Seller of Goods Sends “Wrong” Goods

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Offeree Fully Performs

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Full performance = ALWAYS acceptance.
If notice of performance is required, answer turns on:
(i) what offer requires OR
(ii) if offeree has reason to believe offeror won’t learn of acceptance.

FAILURE to notify of complete performance can excuse offeror.

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Offeree Starts to Perform

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Bilateral Contracts:
Start of performance is acceptance in bilateral contracts (treated as an implied promise).

Unilateral Contracts:
Start of performance is generally NOT acceptance of unilateral contract offer. Acceptance is COMPLETION

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Offeree Promises to Perform

Back 28

Most offers can be accepted by promise to perform (but NOT unilateral offers).

Front 29

Offeror and Offeree in Different Places w/Conflicting Communications

Back 29

Generally, communication is effective when received.

Mailbox Rule:
Acceptance can be effective when SENT IF it's in “manner and by means invited.” BUT if offeree sent a rejection before sending acceptance, nothing is effective until received.
If rejection and acceptance sent:
One arriving first is effective

Front 30

Seller of Goods Sends the Wrong Goods

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Sending wrong goods is generally seen as:
1)acceptance and
2) breach of contract

Accommodation Exception:
If attached w/explanation for wrong goods, shipment is seen as counteroffer and is NOT a breach

Front 31

Legal (formation) reasons for not enforcing agreement:

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M(1) lack of consideration (or substitute)
(2) lack of capacity of promisor
(3) SOF
(4) illegal to perform
(5) public policy
(6) misrepresentations
(7) duress
(8) unconscionability
(9) ambiguity in agreement
(10) mistakes as to material facts

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Approach to Consideration Problems:

Back 32

Focus on that person and see if he/she was bargaining for something in exchange.

Look at each promise separately.
Identify:
1) promisor (∆) and what ∆ bargained for and
2) promisee (п) and what detriment п incurred.

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Past Consideration

Back 33

Past Consideration = NOT consideration

Exception:
Act expressly requested and there is expectation of payment

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Common Law Pre-existing Duty as Consideration:

Back 34

Doing what you are already legally obligated to do is NOT new consideration for new promise to pay more for that obligation.

Exceptions:
Addition to or change in performance
Unforeseen difficulty so severe it excuses
Third party promise to pay

Front 35

UCC Pre-existing Duty as Consideration

Back 35

Good faith is test for changes in existing sale of goods contract.

Does NOT have pre-existing legal duty rule.

Front 36

Most important Consideration Substitute

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Promissory Estoppel

Elements:
1)Promise
2) Reliance that is reasonable, detrimental and foreseeable
3) Enforcement necessary to avoid injustice

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Comparison of consideration and promissory estoppel:

Back 37

Consideration is doing something asked of you.
If NO ONE asked then look to promissory estoppel.

Front 38

Who Lacks Capacity to Contract?

Back 38

1) Infant (under 18)
2) Mental incompetents (lacks ability to understand agreement)
3) Intoxicated persons IF other person has reason to know they are intoxicated

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Major Issues re: Capacity

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Right to disaffirm by person w/o capacity

Implied affirmation by retaining benefits after gaining capacity (ratification)

Quasi-contract liability for necessaries

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Purpose of the Statute of Frauds

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SOF is designed to prevent fraudulent claims (or falsely alleging contracts) by requiring “special” proof that contract exists

Front 41

Three primary SOF issues:

Back 41

1) Is contract within SOF?

2) If it is, is the SOF satisfied?

3) Is there an SOF defense?

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Seven kinds of Contracts within the SOF?

Back 42

1) Promise in consideration of marriage (not merely promise to marry)
2) Promise by executor or administrator to pay debt of decedent personally
3) Promises to creditors answer for debts of another (suretyship):
4) Long-term Contracts (term of longer than 1 year or services that will take more than 1 year to perform)
5) Transfers of Interests in Real Estate (w/exception for leases of year or less)
6) Sale of Goods for $500 or More
7) Leases of Goods w/Payments Totaling $1,000 or More

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How is the SOF satisfied?

Back 43

1) Performance
2) Writing

Front 44

Performance under SOF

Back 44

1) Full performance required for service contracts
2) Part performance of contract for sale of goods generally satisfies SOF but only to extent of part performance
3) Real Estate transfers need 2/3 of the following: a) full or party payment, b) Posession, and/or c) Improvements

Front 45

Writing under SOF -- general strategy

Back 45

(1) if exam simply refers to writing: NO SOF problem

(2) If exam refers to writing AND gives details about content: there are STILL SOF issues:

Front 46

SOF Writing Requirements Common Law:

Back 46

1) Must include all material terms (who is agreeing and to what)
2) Must be signed by party asserting an SOF defense

Front 47

SOF Writing Requirements -- UCC Art. 2

Back 47

Requires signature and stipulation of product and quantity (person asserting SOF defense must have signed)

Exception:
If both parties are merchants, and one who received signed writing w/quantity term claiming there is contract fails to respond w/10 days

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Illegal Subject Matter/Illegal Purpose:

Back 48

Illegal Subject Matter: If subject matter illegal, agreement not enforceable

Illegal Purpose: If subject matter legal but purpose illegal, agreement is enforceable ONLY by person who did not know of illegal purpose.

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Public Policy enforcement issues

Back 49

Courts can refuse to enforce agreement b/c public policy.

Examples: exculpatory agreement that exempts intentional or reckless conduct from liability or covenant not to compete w/o reasonable need or reasonable time and place limits.

Front 50

Misrepresentation or Fraudulent Concealment enforcement Issues

Back 50

Look for false assertion or concealment of facts that induces contract.

Front 51

Duress: Physical or Economic

Back 51

Physical duress will not be on exam.

Elements of economic duress:
Will involve
1) “bad guy” (improper threat) and
2) “vulnerable guy” (no reasonable alternative).

Front 52

Unconscionability

Back 52

Two basic tests:
1) Unfair Surprise (procedural)
2) Oppressive Terms (substantive)

Front 53

Misunderstanding/Ambiguity Issues

Back 53

There will be no contract if:

1) Parties use material term open to at least two reasonable interpretations,
2) Each party attaches different meaning to term, and
3) Neither party knows (or has reason to) term open to other reasonable interpretations.

Front 54

Mutual Mistake of Material Fact

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No contract if:

1) Both parties mistaken, and
2)Basic and material assumption of fact, and
3) Materially affects agreed exchange, and
4) Not a risk that either party bears

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Parol Evidence -- Integration

Back 55

o Written agreement court finds parties meant to be final agreement

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Parol Evidence -- Partial Integration

Back 56

o Written and final but not complete (usually wrong answer)

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Parol Evidence -- Complete Integration

Back 57

o Written, final and complete (usually wrong answer)

Front 58

Parol Evidence -- Merger Clause

Back 58

o Contract clause such as “this is complete and final agreement”

Front 59

Definition of Parol Evidence

Back 59

Oral or written words of parties before/during integration

May or may not be used to define terms of the contract

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Parol Evidence -- Agreement

Back 60

o Equitable action to modify written contract to reflect actual agreement

Front 61

Triggering Facts for Parol Evidence Questions

Back 61

1) Written final contract
2) Statements made at/before contract

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Parol Evidence -- Four Basic Fact Patterns

Back 62

1) PE Contradicting Written agreement
2) Getting out of Written deal
3) Explaining terms in written deal
4) Adding to Written deal

Front 63

PE -- Contradicting Written agreement

Back 63

PE inadmissible to contradict written terms of agreement (regardless of whether completely and partially integrated).

Exception: Mistake in Integration (clerical errors)

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PE -- Getting out of Written Agreement

Back 64

PE admissible as defense for purposes of rescinding (to establish misrepresentation, fraud, duress, OR condition precedent, etc.)

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PE -- Explaining Terms of Written Agreement

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PE admissible for limited purposes of explaining terms in agreement and resolving ambiguities.

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PE -- Adding to Written Agreement

Back 66

PE admissible if contract NOT completely integrated (only fact pattern where integration is important).

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Comparison of Parol Evidence Rule and SOF:

Back 67

It is ONLY PE question if it mentions a written agreement

Fact pattern most often triggering SOF is ABSENCE of written agreement

Front 68

Terms of Contract -- Conduct and Course of Performance

Back 68

To explain words in contracts or to fill gaps, Courts look to:
1) course of performance (Same people, same contract -- Most persuasive)
2)course of dealing (Same people, different but similar contract -- less persuasive)
3) custom and usage (• Different but similar people, different but similar contract -- least persuasive)

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Performance -- Common Law

Back 69

Look to terms of the contract

Front 70

Nonmonetary Remedies (In Rem) for breach

Back 70

1) Specific Performance
2) Reclamation --
3) Rights of Good Faith purchaser in Entrustment

Front 71

K remedies -- Specific Performance

Back 71

Only available if money damages are inadequate.

Examples: Real Estate (unless already sold to 3rd Party); unique or custom-made goods.

Note: NO specific performance for services contracts

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K Remedies -- Reclamation

Back 72

Right of unpaid seller to get goods back.
KEY facts:
(i) buyer must have been insolvent at time goods received, AND
(ii) seller demands return of goods w/10 days of receipt (is “reasonable time” if express representation of insolvency by buyer before delivery) AND
(iii) buyer still has goods at time of demand.

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K Remedies -- Rights of Good Faith Purchaser in Entrustment:

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If owner leaves goods w/person who sells goods of that kind and who wrongfully sells items to 3rd party w/good faith, then rights of original owner/entruster in specific goods cut off (can only sue for damages)

Exception: Cannot get good title from thief. Stolen property can be reclaimed.

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Remedies -- Measure of Money Damages

Back 74

1) Expectation
2) Reliance Interest
3) Restitution Interest

Front 75

Money Damages -- Expectation

Back 75

Intent is to put п in same economic position as if contract had been performed.

(Default approach on Bar Exam)

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Money Damages -- Reliance Interest

Back 76

Restoring to п based on п’s reliance interest.
Intent is to put п in same economic position as if contract had never happened.

ONLY use this approach if expressly instructed to by question

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Money Damages -- Restitution Interest

Back 77

Reclaiming amount that ∆ has been enriched.
Intent is to put ∆ in same economic position as if contract had never happened.

ONLY use this approach if expressly instructed to by question

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Damages under UCC Art. 2

Back 78

All UCC questions are expectation damages

Front 79

UCC Damages -- Seller breaches, buyer keeps goods:

Back 79

[Fair market value if perfect]–[Market value as delivered] = Damages

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UCC Damages -- Seller Keeps Goods

Back 80

[Market price when breach discovered]–[Contract price] = Damages;
or
[Replacement price]–[Contract price] = Damages

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UCC Damages -- Buyer breaches, buyer has goods

Back 81

Contract Price

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UCC Damages -- Buyer breaches, seller has goods

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[Contract price]–[Market price at time/place of delivery] = Damages
[Contract price]–[Resale price] = Damages (+provable lost profits)

Lost Profits (Lost Volume):

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Incidental Damages

Back 83

Costs incurred dealing w/breach (always recoverable)

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Foreseeable Consequential Damages:

Back 84

Damages arising from п’s special circumstances;

Recoverable only if ∆ had reason to know at time of contract

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Avoidable Damages

Back 85

No recovery for damages the could have been avoided w/o undue burden on п.

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Liquidated Damages:

Back 86

Tests:
1) Damages were difficult to forecast at time of contract AND
2)Provision is reasonable forecast.

Presume Valid: Liquidated damages as Formula ($1,000 day/each late day)
Presume Invalid: Liquidated damages as Fixed number ($10,000 if late)

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Issues to look for when dealing with Excuses for Nonperformance

Back 87

Look for info on
(i) nonperformance and
(ii) something happening after contract

Front 88

Excuse for Material Breach -- Common Law

Back 88

Three general rules:
1) Damages can be recovered for any breach
2) Only material breach by one excuses other from performing
3) Whether breach is material is fact question (will be obvious on the bar)

Front 89

Excuse for Material Breach -- UCC

Back 89

Perfect tender rule:

If tender imperfect, contract can always be rejected.

Front 90

Excuse for Repudiation

Back 90

Unambiguous statement or conduct indicating
(i) repudiating party will not perform
(ii) made prior to time performance was due
(iii) excuses other party’s duty to perform
(iv) gives rise to immediate claim for damages for breach unless claimant has already finished performance.

Front 91

Excuse -- Insecurity

Back 91

If words or conduct of one party give “reasonable grounds for insecurity” then other party can suspend performance until it receives adequate assurance if it is “commercially reasonable to suspend performance.”

Front 92

Excuse -- Later, Unforeseen event

Back 92

Performance (outside of monetary payment) can be excused by impossibility, impracticability, or frustration of purpose