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86 Cards in this Set
- Front
- Back
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Seven Steps of Contract Analysis
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Applicable Law
Formation Terms Performance Remedies Excuse Third-party problems |
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Unilateral Contract
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A unilateral contract can only be formed if the offer states that the only possible way to accept is through performance.
Generally only rewards, prize, contest, or wacky facts about only performance to accept. |
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Bilateral Contract
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Promise for a promise. Most contracts are bilateral
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Quasi contract
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NOT A CONTRACT AT ALL
simply an equitable remedy that can be applied by a judge if contract law results in an unfair judgment No statute of frauds, consideration, capacity, etc because contract law does not apply |
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How do you decide what law to apply?
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Determine if common law or Article 2 applies by looking at the subject matter of the contract.
If goods, then article 2. If real estate, or services, then apply common law. If combo deal, then usually determine what the more important part of the deal is and apply corresponding law to whole contract. If contract divides payment for services and goods, then apply common law to services and Art 2 to goods. |
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What is a contract?
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A legally enforceable agreement.
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Three things to look for when deciding if there has been an agreement:
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Offer
Termination Acceptance |
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What is an offer?
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A person's manifestation of willingness to be bound in contract.
Words or conduct showing commitment by that person. Basic test is whether a reasonable person in the position of the offeree would believe that his assent would create a contract. |
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What terms are required in offers?
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There is not an all material terms requirement for offers.
Missing terms are usually ok - will be filled in by default rules - exception: real estate offers must have price Terms must NOT be ambiguous or vague Requirements or Output contracts are okay and are not vague - though increases or decreases in quantities must not be unreasonably disproportionate |
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Can advertisements or quotations be offers?
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Advertisements can be offers if specifically indicate quantity available and who can accept.
Quotations are offers if sent in response to inquiry. |
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How can offers be terminated?
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1. Lapse of (reasonable amount of) time
2. Death of a party before acceptance 3. Revocation through words or conduct of offeror 4. Rejection by offeree |
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How is an offer revoked?
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Through later unambiguous statement by offeror to offeree indicating unwillingness or inability to contract
-OR- later unambiguous conduct of offeror indicating unwillingness or inability to contract that offeree is aware of |
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When can an offer be revoked? When can it not be revoked?
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Generally, an offer can be freely revoked by offeror anytime before acceptance.
There are four situations that create an irrevocable offer: 1. Options 2. UCC Firm Offer Rule 3. Reliance 4. Unilateral contract |
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What is an option?
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Offer plus two -
1. promise not to revoke for a period of time, and 2. some consideration paid for this promise |
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What is the UCC Firm Offer Rule?
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An offer cannot be revoked for up to three (3!) months if:
1) it was an offer to buy or sell goods, 2) with a signed written promise to keep offer open, and 3) the promising party is a merchant |
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When does reliance create an irrevocable offer?
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An offer cannot be revoked if there has been
1) reliance that is 2) reasonably foreseeable, and 3) detrimental |
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When does an offer for a unilateral contract become irrevocable?
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Once the offeree starts performance, the offer must remain open for a reasonable period of time to allow the completion of performance.
Note: mere preparation does not amount to start of performance - paint must be on the wall, but look for reliance |
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How can an offeree reject an offer?
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1. Directly state that he rejects offer, or more likely on the bar,
2. Indirect rejection through one of the following: A. counteroffer B. conditional acceptance C. additional terms (common law only) |
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Counteroffer v. Bargaining
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Counteroffers reject original offer and act as new offer, but bargaining is not a rejection. Problem is language is similar.
Bargaining always is in the form of a question as a response to the offer. |
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How does one recognize a conditional acceptance?
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Look for a response to an offer with the word accept followed by "if", "only if", "provided", "so long as", "but", or "on condition that".
Common law rule is that a conditional acceptance is a rejection and counteroffer that can be accepted by conduct - additional terms can be part of the contract UCC: conditional acceptance is a rejection. Any contract formed is based solely on conduct and will not have terms from earlier offers. |
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What is the mirror image rule?
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Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. To be an acceptance all terms must be identical.
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How are new terms in an acceptance handled under the UCC?
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Additional terms are normally not a rejection, but are a "seasonable expression of acceptance", unless there is express insistence on the term.
New terms are usually not a part of the contract. However, it can be incorporated if both parties are merchants, the additional term is not material, and the original offeror does not object to the term. |
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How can an offer be accepted?
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Offeror can control the method and means of acceptance by so stating in the offer. However, most offers are silent to method of acceptance, and can be accepted in any reasonable manner.
Three common Bar exam acceptance fact patterns: 1. acceptance by start of performance - this is a valid acceptance 2. distance and delay in communications - mailbox rule 3. Seller sends wrong goods = acceptance and breach unless explanation is given and then it is an accommodation = counteroffer and no breach |
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Explain the mailbox rule
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1. all communications other than Acceptance are effective only when received
2. acceptance is generally effective when mailed 3. if a rejection is mailed before an acceptance is mailed, then neither is effective until received (race) 4. mailbox rule cannot be used to meet deadlines on options |
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Who can accept an offer?
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by a person who knows about the offer and who is the person to whom it was made.
Offers CANNOT be assigned - options can be assigned unless K states otherwise |
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To be a contract, an agreement must be legally enforceable. What are the eleven main reasons for not enforcing an agreement?
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MiND CAPSICUM
1. Mistake 2. Nondisclosure 3. Duress 4. Consideration 5. Ambiguity 6. Public Policy 7. Statute of Frauds 8. Illegality 9. Capacity 10. Unconscionability 11. Misrepresentations |
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What is consideration?
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bargained-for legal detriment
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Can preexisting contractual or statutory duty be consideration?
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Generally, no. Doing what you already need to do is not consideration for new promises, and new consideration is needed for contract modifications.
However, any change to the preexisting duty is new consideration and that includes accepting a new third party promise to pay. |
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Is new consideration needed for contract modification?
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common law: yes
UCC: no if in good faith |
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Is part payment of debt owed consideration for promise to forgive balance of debt?
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No, not if debt is due and undisputed. It can be if paid early, or some amount is in dispute.
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Define Promissory estoppel
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AKA detrimental reliance
1) a promise, 2) reliance on the promise that is reasonable, detrimental, and foreseeable, and 3) enforcement necessary to avoid injustice. Can be a substitute for consideration. |
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What is the Statute of Frauds?
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A statute designed to prevent fraudulent claims of the existence of a contract by requiring objective proof of certain contracts before giving claimant their day in court. Generally need proof of writing signed by defendant or performance.
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When does the Statute of Frauds apply?
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Four contracts are within the Statute of Frauds:
1. Promises to pay another's debts if they do not pay, unless main purpose of obligation benefited guarantor. 2. Service contract not capable of being performed within one year from time of contract 3. Transfers of interest in real estate (with exception of leases for one year or less) 4. Sales of goods for $500 or more |
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How is the Statute of Frauds satisfied?
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Must show objective evidence that satisfies court's concern about fraud. This can be evidence of performance or a writing signed by defendant.
Performance: 1. For real estate, must show two of three: improvements, payment, and possession 2. For service contracts, full performance by either party satisfies, BUT PART PERFORMANCE DOES NOT. 3. For UCC contracts, part performance satisfies only to the extent of the part performance, unless SPECIALLY MANUFACTURED GOODS, then a "substantial beginning" satisfies. Writing: 1. Common law: Must state who and what (all material terms test), and must be signed by defendant 2. UCC: Only must state quantity, and may not need to be signed between merchants if defendant failed to reply |
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What is equal dignity?
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Equal Dignity describes the requirement for agent authorizations to comply with Statue of Frauds if the underlying contract would be within the Statue of Frauds.
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When is written proof required for contract modifications?
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When the deal with the alleged change would be within the Statute of Frauds. Under common law, written modification requirement clauses are invalid. Under UCC, they are effective unless waived.
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What is a misrepresentation?
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(1) a statement of “fact” before the contract, (2) by one of the contracting parties or her agent, (3) that is false, and (4) induces the contract. No wrongdoing required for material misrepresentations to make an agreement unenforceable.
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When can nondisclosure be a defense?
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Generally, a person making a contract has no duty to disclose what she knows. There must be Wrongdoing for nondisclosure as a defense Look for fiduciary-like
relationship or concealment. |
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When can ambiguity be raised as a defense?
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There will be no contract if (i) parties use a material term that is open to at least two reasonable interpretations, and (ii) each party attaches different meaning to the term, and (iii) neither party knows or has reason to know the term is open to at least two reasonable interpretations.
If one party knew of the two meanings, then there is a K with the terms as understood by the ignorant party. |
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When can mistake be raised as a defense?
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Relief for mutual mistake is available only if both parties are mistaken (not just uncertain) about a basic assumption of the contract, the mistake has a material effect, and the party seeking avoidance had not assumed the risk.
Unilateral mistake rarely ever gets relief - only if palpable mistake and other party should have known. (bid that is much too low) |
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What are the four sources of terms for a contract?
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1. Words in the written contract
2. Words of the parties not in the written contract (Parol Evidence) 3. Conduct 4. UCC default terms |
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What is the Parol Evidence rule?
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The parol evidence rule is like an evidence rule in the sense that (1) the issue is whether evidence is admissible and (2) admissibility often depends on the
purpose for which the evidence is to be introduced. |
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When is the parol evidence rule triggered?
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Look for a final written contract, and a party trying to introduce earlier words that are not in the final contract
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Define:
Integration Partial Integration Complete Integration Merger Clause |
An integration is the written agreement that the court finds is the final agreement
A partial integration is written and final but not complete - some terms are missing. A complete integration is written, final, and complete. A merger clause states that the parties agree the contract is the complete and final agreement. These are persuasive but not conclusive evidence that the writing is a complete integration. |
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What are five purposes that a party may try to use parol evidence for, and is it admissible for those purposes?
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1. Changing or contradicting terms in the written deal.
--parol evidence cannot be considered for the purpose of contradicting the terms of a written contract 2. Mistake in the integration --parol evidence MAY be used for the limited purpose of determining whether there was a mistake in the integration (typos). 3. Evidence for defenses to the enforcement of a contract such as fraud, misrepresentation or duress --parol evidence is allowed to prove these defenses 4. Ambiguity; explaining terms in contract --parol evidence can be used to resolve ambiguities 5. Adding terms to the written deal --Generally parol evidence cannot be used to add terms to an agreement, BUT if court finds writing was a partial integration or if terms would normally be in a separate agreement, then it may be allowed. |
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How does the parties' conduct affect terms of agreement?
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Conduct is most often used to fill in gaps in an agreement or to explain terms.
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What three types of conduct do courts use to explain terms or fill in gaps?
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1. course of performance - same people & same deal
2. course of dealing - same people but different deal 3. custom and usage - different but similar people and different but similar deal |
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What three default terms does the UCC supply?
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1. Delivery obligations of seller if delivery by common carrier
2. Risk of loss 3. Warranties |
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What is the difference between shipment and destination contracts?
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Most contracts with delivery obligations are shipment contracts. Watch for the use of FOB – free on board (city) – as source for determining whether the contract is a shipment contract or a destination contract. FOB followed by city where the seller is or where goods are means shipment contract; FOB followed by any other city means destination contract.
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When does a seller complete his delivery obligation?
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For shipment contracts the seller must:
(i) get the goods to a common carrier, and (ii) make reasonable arrangements for delivery, and (iii) notify the buyer. In a shipment contract, the seller completes its delivery obligation before delivery is completed. For destination contracts the seller does not fulfill his delivery obligation until the goods arrive at the destination. |
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What does a risk of loss problem look like?
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Risk of loss issues arise where (i) after the contract has been formed, but before the buyer receives the goods, (ii) the goods are damaged or destroyed, and (iii) neither the buyer nor the seller is to blame.
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How do courts decide which party has the risk of loss?
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Risk of loss rules:
1. What does the agreement say? It controls. 2. If one party has breached he has risk of loss even if breach was unrelated. 3. If common carrier delivery, then risk shifts to buyer when delivery obligation has been completed. 4. Catch-all: --if seller is a merchant, then risk shifts upon buyer's receipt of goods (physical possession) --if seller is not a merchant, the risk shifts upon tender of goods (when they are made available to buyer) |
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What is an express warranty?
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Words that promise, describe or state facts. Showing of a sample or model is an express warranty that the goods will be the same as the sample.
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What is the implied warrant of merchantability?
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When any person buys goods from a merchant of that type of good, a term is automatically added to the contract by operation of law – that the goods are fit for the ordinary purpose for which such goods are used.
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What is the implied warranty of fitness for a particular purpose?
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An implied warranty that is added when a buyer has a particular purpose for a good, seller knows if this purpose, and buyer relies on seller to select suitable goods. The warranty is that the goods are a good fit for the particular purpose.
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How are warranties limited?
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1. Statute of limitations - 4 years from tender or delivery
2. Privity - plaintiff must have contracted directly with defendant. IN MARYLAND, PRIVITY DOES NOT PREVENT RECOVERY FOR PERSONAL INJURY TO CONSUMERS 3. Buyer's examination of goods eliminates implied warranties as to defects which would be obvious on examination - does nothing to express warranties |
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Can warranties be disclaimed?
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Disclaimers
--express warranties cannot be disclaimed --implied warranties of merchantability and fitness can be disclaimed with conspicuous language or by selling "as is" or "with all faults". --MARYLAND has a higher level of consumer protection than most states, and does not allow implied warranties to be disclaimed on consumer goods. |
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Can remedies be limited for breach of warranty?
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Limitations of remedies: sets recovery for any breach of warranty on value of good usually
--possible to limit remedies for all warranties including express --limitations are okay unless unconscionable --prima facie unconscionable if breach causes personal injury --Maryland: MD has greater protection of consumers than most states. Efforts to limit remedies for express warranties for consumer goods are typically not effective. |
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Three things to know about perfect tender for bar exam
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1. “perfect tender” only applies to sales of goods.
2. “perfect tender” does not mean that the seller’s performance must be perfect; rather, the goods and the delivery must conform to the contract terms. 3. a less than “perfect tender” by the seller generally gives the buyer the option of rejection of the delivered goods, so long as the buyer acts in good faith. |
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What can buyer do if seller does not perfectly tender?
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Can reject all or any commercial unit and sue for damages, OR
can retain goods and sue for damages |
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What is "cure"?
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A seller's second chance to perfectly tender. Can defeat a buyer's rejection.
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When is cure available?
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1. when the contract specifically allows for it
2. if seller had "reasonable grounds" for believing the tender would be acceptable - look for past dealings 3. if time for performance has not yet expired |
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How can installment contracts affect buyer's ability to reject goods?
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An installment contract REQUIRES or AUTHORIIZES (i) delivery of the goods in separate lots (ii) to be separately accepted. The buyer has the right to reject an installment only where there is a substantial impairment in that installment that can't be cured.
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Can a buyer reject goods after accepting them? How does a buyer accept?
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No. If a buyer accepts goods, he cannot later reject them.
Simply paying for goods without having an opportunity to inspect them does not mean they were accepted. Failing to reject after having adequate time to reject is acceptance. |
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What are the requirements for revoking an acceptance?
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The requirements for revocation are as follows:
1. nonconformity substantially impairs the value of the goods, and 2. excusable ignorance of grounds for revocation or reasonable reliance on seller's assurance of satisfaction, and 3. revocation within a reasonable time after discovery of nonconformity. |
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Compare rejection with revocation
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Rejection Revocation
1. Timing Early, before acceptance Later, after acceptance 2. Standard Generally, perfect tender Substantial impairment 3. Other 1. seasonably notify seller Elements 2. hold the goods for seller 3. follow reasonable seller instructions 4. Consequences 1. Goods go back to seller 2. No buyer payment obligation |
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When is specific performance available?
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1. Real estate (unless later sold to bona fide purchaser)
2. Antiques 3. Art 4. Custom made goods |
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When can an unpaid seller get it's goods back?
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(i) the buyer must have been insolvent at the time that it received the goods, and
(ii) the seller demands return of goods within 10 days of receipt (this “10-day rule” becomes a “reasonable time rule” if, before delivery, there had been an express representation of solvency by the buyer), and (iii) the buyer still has goods at time of demand. |
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What is primary policy goal of money damages?
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To compensate plaintiff as if the breach had not occurred, and not to punish defendant
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How does one calculate damages?
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Expectation damages
+ Incidental damages + consequential damages - avoidable damages - uncertain damages + reliance damages |
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How does one determine expectation damages?
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(1) look to facts for dollar value of performance without breach,
(2) look to facts for dollar value of performance with breach, and (3) compare the two to determine the amount of damages. |
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What are incidental damages and when are they available?
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Costs incurred in dealing with the breach such as costs of storing rejected goods in a sale of goods or finding a replacement in a services contract – always recoverable.
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What are consequential damages and when are they available?
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Consequential damages are the kind of loss that is special to this plaintiff. Consequential damages are limited to damages arising from P’s special circumstances and recovery of consequential damages is limited to situations in which D had reason to know of these special circumstances at the time of the contract.
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What are avoidable damages?
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Damages that could have been avoided without undue burden on the plaintiff.
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What are liquidated damages and when are they available?
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Damages that are agreed upon in the contract. To be valid, amount must be a reasonable forecast of damages, and actual damages must have been difficult to forecast. Invalid if it looks like a penalty.
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What are 8 common post-contract excuses, and when are they available?
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I DEADMAN
I illegality - if later law makes contract performance illegal then excuse by impossibility. If makes purpose illegal then excuse by frustration of purpose. D destruction of subject matter - must make performance impossible not just expensive E express condition - performance excused if condition does not occur A anticipatory repudiation - if other party unambiguously states he is not going to perform, then performance is excused D death - death does not generally excuse performance unless specific service contract M material breach - if other party does not substantially perform then your performance is excused. Clearly less than half = material breach A accord and satisfaction - new agreement to accept different performance in satisfaction of original obligation. If accord is not satisfied, then other party can collect on either obligation but not both. Look for IF and THEN. N novation - agreement by both parties to substitute a new party |
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Define:
Third-party beneficiary Promisor Promisee |
Third-party beneficiary = not a party to the contract, but benefits from it, and intended beneficiaries can enforce the contract
Promisor = party that makes the promisee that will benefit third-party Promisee = party that obtains the promise that will benefit third-party |
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In third-party beneficiary law, who can sue whom?
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Beneficiary can recover from promisor
Promisee can recover from promisor But, generally a beneficiary cannot recover from promisee, unless beneficiary is a creditor of promisee and can then only recover up to amount of preexisting debt Promisor can assert any defense that he had against promisee |
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Limiting Assignments-
What is the difference between prohibiting assignments and invalidating assignments? |
Prohibition: Language of prohibition takes away the right to assign but not the power to assign, which means that the assignor is liable for breach of contract, but an assignee who does not know of the prohibition can still enforce the assignment.
Invalidation: Language of invalidation takes away both the right to assign and the power to assign so that there is a breach by the assignor and no rights in the assignee. Contract will usually say "all assignments are void" |
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What is the Common law limitation on assignments?
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Common law bars any assignment that "substantially changes" the duties of the obligor.
Assigning right of payment is never substantial change. Assigning right of performance usually is substantial. |
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Is consideration required for assignments?
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General rule is that consideration is not required, but gratuitous assignments (and only gratuitous assignments) can be revoked
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Assignments - Who can sue whom?
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Assignee can recover from obligor
Assignor for consideration CANNOT recover from obligor. Obligor can assert same defenses against assignore and assignee |
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What is the implied warranty of assignors?
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Implied warranties of assignor in an assignment for consideration:
In an assignment for consideration, the assignor warrants (1) the right assigned actually exists, and (2) the right assigned is not subject to any then existing defenses by the obligor, and (3) the assignor will do nothing after the assignment to impair the value of the assignment. Assignor, however, does not warrant what the obligor will do after the assignment. |
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Who wins if there have been multiple assignments?
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If all gratuitous: last assignee wins
If some consideration: first assignee for consideration usually wins, unless a subsequent assignee for consideration does not know of earlier assignment and is the first to obtain payment, novation, judgment or other indicia of ownership. |
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Which duties are delegable?
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Generally, contractual duties are delegable. The limitations on delegation are very limited. Delegations are permitted unless either (1) contract prohibits delegations or prohibits assignments or (2) “personal services contract” that calls for VERY SPECIAL skills.
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What if, after delegation, the third-party delegatee does not perform?
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1. Delegating party always remains liable.
2. Delegatee liable only if she receives consideration from delegating party. |
