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73 Cards in this Set
- Front
- Back
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Objective Theory of Contracts |
Whether a party intends to enter into a contract is judged by outward objective facts, as interpreted by a reasonable person
Intent of a party = what a reasonable person in the position of the other party would believe as a result of that party's objective manifestation of intent |
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Mutual Assent |
Occurs upon acceptance of a valid offer to contract |
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Offer |
Manifestation of willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree |
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Intent and Knowledge for an Offer |
Present intent to be legally bound to a contract
Offeree must have knowledge of the offer in order to have the power to accept |
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Required Terms of an Offer - Common Law |
Terms of the contract must be certain and definite - all essential terms must be covered (price, parties, subject, and quantity) |
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Required Terms of an Offer - UCC |
Contract formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy
UCC fills the gaps when contract is silent as to a term, only need parties, subject, and quantity |
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When an offer doesn't give the power of acceptance to the other side (NOT AN OFFER) |
Invitation to Deal - preliminary communications that still reserve a final round of approval with the speaker
Advertisements - usually an invitation to deal, exception when a reward advertisement OR very specific and leave nothing open to negotiation |
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Termination of Offers |
1. Offeror revokes constructively or by express communication 2. Offeree rejects the offer 3. Offeree makes a counteroffer 4. Offeror dies 5. Reasonable amount of time passes |
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Irrevocable Offers |
Option Firm Offer (UCC) Partial Performance Promissory Estoppel |
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Option |
Independent promise to keep and offer option for a specific period of time
Irrevocable - remains open until after period expires |
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Firm Offer (UCC) |
Offer to buy/sell goods is irrevocable if:
1. The offeror is a merchant 2. There are assurances that the offer is to remain open; and 3. The assurance is contained in an authenticated writing from the offeror |
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Partial Performance |
If the offer is for a unilateral contract, offeror cannot revoke the offer once the offeree has begun performance |
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Unilateral Contract vs. Bilateral Contract |
Unilateral - promise requesting acceptance by action of the promisee
Bilateral - promise requesting acceptance by a return promise of the promisee |
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Promissory Estoppel (Offer Termination) |
Offeree detrimentally relies on the offeror's promise prior to acceptance, this doctrine may make the offer irrevocable if it was reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract |
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Acceptance |
Objective manifestation by the offeree to be bound by the terms of the offer
Offeree must know of the offer upon acceptance and the offeree must communicate the acceptance to the offeror |
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Acceptance in Unilateral Contract |
Offeree must perform the act to accept the offer - promise to perform is insufficient to accept |
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Acceptance in Bilateral Contract |
Offeree can accept by either a return promise or by starting performance
Commencement of performance operates as a promise to render complete performance |
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Ambiguity in Acceptance Terms |
When it is not clear whether action or promise is required for acceptance - either way is OK under the Modern Rule |
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Mailbox Rule |
An acceptance that is mailed is valid when sent |
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Situations where the Mailbox Rule doesn't apply |
Offeree sends something else first (rejection, counteroffer)
Other types of communication
Option Contracts
Unclear as to other media - email, fax, etc. |
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Acceptance by Silence |
Silence generally does not operate as acceptance, even if the offer states that silence qualifies as acceptance, unless:
1. Offeree has reason to believe that the offer could be accepted by silence, was silent, and intended to accept the offer by silence; or
2. Because of previous dealings or pattern of behavior, it is reasonable to believe that the offeree must notify the offeror if the offeree intends not to accept |
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Counteroffer - Common Law Rule |
Mirror Image Rule - acceptance must mirror the terms of the offer or it is not an acceptance, but a counteroffer |
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Counteroffer - UCC |
Purported acceptance that does not match the terms of the offer exactly can still count as a legal acceptance in many circumstances
2-207: A definite and seasonable expression of acceptance which is sent within a reasonable time oeprates as an acceptance even though terms are additional/different, unless acceptance is expressly made conditional upon assent to the additional or different terms |
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Terms that Control - Both Parties are Merchants and Terms are Additional |
Automatically included unless:
1. Materially alters the original contract; 2. Offer expressly limited acceptance to the terms of the offer; or 3. Offeror has already objected to the additional terms or objects within a reasonable time after notice of them was received |
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Terms that Control - Both Parties are Merchants and Terms are Different |
Different terms in the offer and acceptance nullify each other and are knocked out of the contract
UCC will fill the gaps |
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Terms that Control - Both Parties are not Merchants |
Additional and different terms are treated as a proposal for addition to the contract that must be separately accepted by the offeror in order to become part of the contract |
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Consideration |
Deal in which the parties exchange promises involving a legal detriment or benefit (bargained-for change in the legal position of the parties) |
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Adequacy of Consideration |
A pretense of consideration is insufficient - there must be something of substance, either an act or a promise, which is given in exchange for the promise that is to be enforced |
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Preexisting Duty Rule (Adequacy of Consideration) |
Common Law - a promise to perform a preexisting legal duty does not qualify as consideration
Exception: third party offers a promise contingent upon performance of a contractual obligation by a party |
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Past Consideration (Adequacy of Consideration) |
Common Law - something given in the past is typically not adequate consideration
Modern trend toward enforcing such promises when necessary to prevent injustice |
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Illusory Promise (Adequacy of Consideration) |
One that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it (not legally binding) |
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Promise not to sue (Adequacy of Consideration) |
Generally can serve as consideration for a settlement agreement because the party is making a promise to forego a legal right
Must be an honest beleif in the validity of the claim and a reasonable basis for the belief |
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Requirements Contract (Adequacy of Consideration) |
Contract under which a buyer agrees to buy all that he will require of a product from the other party (consideration exists becuase promisor suffers a legal detriment)
Need good faith |
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Output Contract (Adequacy of Consideration) |
Contract under which a seller agrees to sell all that she manufactures of a product to the buyer (consideration exists)
Need good faith |
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Accord Agreement |
One party to a contract agrees to accept different performance from the other party than what was promised in the existing promise
Consideration required to be valid |
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Satisfaction |
Performance of the accord agreement - discharges both the original contract and the accord contract |
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Modification - Common Law |
Modification must be supported by consideration, may still be enforced if: 1. Rescission of the existing contract, entering into a new contract and one party is required to perform more than under the original 2. Unforeseen difficulties that would make performance impracticable 3. New obligations on both sides |
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Modification - UCC |
No consideration required to make a modification, requirement of good faith by both parties
Good faith = honesty in fact and fair dealing and accordance with reasonable commercial standards for a merchant |
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Promise of partial payment for release from a debt obligation - when it is binding |
When there is some dispute either as to the validity or amount of debt OR
When the payment is of a different type than called for under the original contract |
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Promissory Estoppel (enforce promise not supported by consideration) |
Promise is binding if: 1. The promisor should reasonably expect it to induce action or forbearance on the part of the promisee or a third person; 2. The promise does induce such action/forbearance; and 3. Injustice can be avoided only by enforcement of the promise |
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Material Benefit Rule |
When a party performs an unrequested service for another party that constitutes a material benefit, modern trend permits performing party to enforce a promise of payment made by the other party after the service is rendered
Not enforced when performing party rendered service without expectation of compensation
Enfored only to the extent necessary to prevent injustice |
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Defenses to Contract Formation |
No valid offer/acceptance No valid consideration exchanged Mistake Misunderstanding Misrepresentation/Fraud Undue Influence/Duress Lack of Capacity |
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Mistake |
A belief that is not in accord with a present material fact |
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Unilateral Mistake |
One party is mistaken as to an essential element of the contract - mistaken party can void the contract if the mistaken party did not bear the risk of the mistake and either:
1. The mistake would make enforcement of the contract unconscionable; or 2. The non-mistaken party: (a) failed to disclose the mistake despite knowing or having a reason to know that the other party was mistaken or having a duty to disclose the fact about which the other party was mistaken; or (b) caused the mistake
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Mutual Mistake |
Both parties are mistaken as to an essential element of the contract - impacted party cannot assume the risk (aware that has limited knowledge and proceeds otherwise)
Must be a substantial difference between the deal as it was contemplated and the actual deal, with no intent by the parties to take a risk on that element of the transaction
Voidable by the party that was adversely affected |
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Misunderstanding |
Both parties believe that they are agreeing to the same material terms, but in fact they agree to different terms
Neither party knows, or should know, of the confusion |
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Misrepresentation |
An assertion that is contrary to the existing facts |
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Fraudulent Misrepresentation |
Exists if the misrepresentation is made: 1. knowingly; 2. without confidence in the assertion; and 3. when the person making the assertion knows that no basis exists for the assertion |
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Fraud in the Factum vs. Fraud in the Inducement |
Factum - prevents a party from knowing the character or essential terms of the transaction (contract is void)
Inducement - used to induce another to enter into a contract (contract is voidable by the adversely affected party) |
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Non-Fraudulent Misrepresentation |
Material misrepresentation, adversely affected party's assent to the contract has been induced by the misrepresentation, and the adversely affected party must have justifiably relied on the misrepresentation
Voidable by adversely affected party |
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Undue Influence |
Unfair persuasion of a party to assent to a contract
Whether the party has been able to exercise free and independent judgment?
Adverse party can void the contract |
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Duress |
An improper threat that deprives a party of meaningful choice
Physical compulsion - contract is void Other instances - contract is voidable |
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Infancy Defense |
Contract made by a person under 18 is voidable by the infant, but not the other party
Disaffirmance must be effected before reaching the age of majority |
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Mental Illness Defense |
Adjudicated mentally incompetent - void K
Voidable and can be disaffirmed if the individual is unable to: 1. understand the nature and consequences of the transaction; or 2. act in a reasonable manner with regard to the transaction and the other party has reason to know of this fact |
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Intoxication Defense |
Voidable by the intoxication party if that person was unable to understand the nature and consequences of the transaction and the other party had reason to know of the intoxication |
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Defenses to Contract Enforcement |
Illegality Unconscionability Public Policy |
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Illegality Defense |
If the consideration/performance that is to occur is illegal, then the contract itself is unenforceable and illegal
Contract itself contemplates illegal activity = void
Contract entered into in furtherance of an illegal act will still be enforced |
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Unconscionability Defense |
A contract is so unfair to one party that no reasonable person in the position of the parties would have agreed to it (offensive at the time it was made) |
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Public Policy Defense |
Contract will be unenforceable if it violates a significant public policy |
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Nondisclosure |
Tantamount to an assertion that the fact doesn't exist - if party not disclosing knows that: 1. disclosure is necessary to prevent a previous assertion from being a misrepresentation/fraud 2. would correct a mistake of the other party as to a basic assumption 3. correct a mistake of the other party as to the contents/effect of a writing evidencing their agreement 4. fiduciary relationship |
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Types of Contracts within Statute of Frauds |
Marriage Suretyship One year UCC Real Property Contract |
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Suretyship |
One party (the surety) promises a second party (the obligee) that the surety will be responsible for any debt of a third party (the principal) resuling from the principal's failure to pay as agreed |
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Main Purpose Exception to Suretyship |
If the main purpose in agreeing to pay the debt of another is for the surety's own economic advantage, Statute of Frauds doesn't apply |
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One-Year Provision - SOF |
Question is whether there is no possible way that the contract could be performed within one year?
Actual terms of the contract must make it impossible for performance to be completed within one year of the date of contracting |
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Real Property Contracts - SOF |
Promise to transfer/receive any interest in real property is within the SOF |
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How to satisfy the Statute of Frauds |
Performance Writing |
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Services Contracts - SOF |
Full performance is required, part performance won't satisfy SOF
A writing signed by the party against whom the contract is asserted will satisfy SOF, must cover fundamental facts (contract made, parties, essential elements of the deal) |
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Real Estate Contract - Satisfy SOF |
Signed writing will generally satisfy
Part performance can satisfy when two of the following are met: 1. Possession 2. Payment 3. Improvements to the Land |
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UCC Contract - Satisfy SOF |
Writing - No need to mention the price; The writing must mention the quantity of goods sold (only enforceable for the quantity mentioned)
Part performance will satisfy, only for the quantity delivered or accepted
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Exceptions to UCC Contract - Satisfy SOF |
Custom made goods - exempted from SOF as soon as maker makes a substantial beginning toward manufacturing
Judicial admission - charged party admits under oath that a contract was made - SOF is satisfied
Failure to object - both parties are merchants, receive a confirming memo and don't object within 10 days, contract enforceable against receiving party even though not signed |
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UCC Modifications - SOF Requirements |
The requirements of SOF must be satisfied if the contract as modified is within the SOF |
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Implied-In-Fact Contracts |
Conduct indicates assent or agreement |
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Implied-In-Law Contracts |
Plaintiff confers a benefit on a defendant and the plaintiff has a reasonable expectation of compensation, allowing the defendant to retain the benefit without compensating the plaintiff would be unjust |
