Wa Bar Contracts

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First Sentence For any Contracts Problem - What law applies

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"A contract for everything but the sale of goods is governed by the common law of contracts."

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Types of K's: Classified by Formation, Acceptance, and Enforceability

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A. Classified by formation
a. Express – by words, can be oral or written
b. Implied – court will look at conduct and circumstances
c. Constructive (quasi (or fictional K) – unjust enrichment
B. Classified by Acceptance
a. Bilateral Promise – promise for promise exchange
b. Unilateral: promise for performance exchange
C. Classified by Enforceability
a. Void – nullity from its inception, neither party can enforce, like it never existed
b. Voidable – when aggrieved party has the option of rendering K unenforceable

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Basic requirements of a valid contract

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"A valid contract requires offer, acceptance, consideration and no defenses to performance."

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Valid Offer: Definition of an offer

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"An offer is a communicated willingness to bargain seeking another’s mere agreement." Viewed under the reasonable person standard

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Valid Offer: Solicitation/preliminary negotiations/terms reasonable certain

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Terms must be reasonably certain

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Valid Offer: Examples of non-offers

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Ads, if quantity or price is missing, subject matter omitted, offeree missing

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Valid Offer: Termination Prior to Acceptance by offeror

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An expression clearly inconsistent with the intent to contract with the offeree. Two types – may do it directly or indirectly through a reliable agent.
1. Revocation is effective when received
2. Offeror may revoke at any time prior to acceptance, except
a. Option K – if OE provides some consideration to keep deal open
b. Firm offer – UCC 2-205
c. Detrimental reliance – offer contains promise that OE relies upon. Think general and subcontractor
d. Performance begun – with unilateral K’s

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Valid Offer: Termination by Offeree

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By rejection or counteroffer1. Rejection or counteroffer – See mirror image rule – the rejection or counteroffer is effective when received
2. Lapse of time - if there is a stated time in offer and it passes, or a reasonable time

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Valid Offer: Termination by operation of law

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i. Death or insanity of either party
ii. Destruction of subject matter
iii. Supervening illegality

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Valid Acceptance: Basic definiton

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Acceptance is the manifestation of assent in the manner invited and the time required

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Valid Acceptance: Who may accept

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Offeree or if offer made to a class of people, a member of that class

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Valid Acceptance: Mirror Image Rule

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Acceptance must mirror the terms of the offer exactly, if not it’s a rejection/counteroffer

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Valid Acceptance: Mailbox rule

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3. Mail Box Rule – Generally effective on dispatch unless one of the exceptions applies
a. rejection also sent – mailbox rule destroyed, whichever one arrives first
b. Option K – effective upon receipt
c. Unauthorized means used – if K calls for fedex and you use USPS, rule does not apply

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Consideration: Basic Definition

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"Consideration is the bargained-for exchange of legal value" – can be a promise for a promise, or a promise for performance. No consideration if a gift – not enforceable

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Consideration: Past consideration and Illusory promises

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1. Past consideration – not valid
2. Illusory promise - empty promises manifesting no commitment, BUT watch for
a. satisfaction clauses – like promise to pay for portrait that is up to your satisfaction – must be good faith
b. Output/Requirement K’s
c. Exclusive Agency K’s

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Consideration: Modifications

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Must have separate consideration to be binding
a. Preexisting legal duty rule – no existing consideration for a preexisting legal duty
b. Exceptions
i. New or different consideration offered
ii. Honest dispute over duty
iii. Unforeseen circumstances encountered

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Consideration: Legal Value

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a. Ct. will not look at adequacy of consideration
b. Nominal consideration – cts will look at this and determine whether it was a sham or joke transaction

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Consideration: Substitute for consideration

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promissory estoppel or detrimental reliance – Must ask if there is no consideration, is there an alternative ground to enforce promise?
a. Promissory Estoppel or detrimental reliance –
i. Must be a promise
ii. Promisor should reasonably expect promise to induce action or forbearance
iii. Inducement of forbearance
iv. Justice requires enforcement
b. Modification under UCC requires only good faith, no consideration
c. Promises to pay legal obligation barred by law – new promise enforceable if in writing or part performance
d. Material Benefit Received and subsequent promise to pay
e. Restitution claim – if there has been a conferred value, may receive restitution

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Defenses to formation: Statute of frauds - MYLEGS

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Ks within the scope of the SOF are not enforceable unless in writing. Scope = MYLEGS
a. Marriage – prenup agreement must be in writing
b. Year – Ks which cannot possibly be performed in a year
c. Land – land sales and transfers of interest lasting over a year
d. Executor – an E who makes a promise to pay out of his own pocket
e. Goods – goods over 500 dollars – still governed by UCC, even if under 500, just no SOF req,
f. Surety – guaranteor of a loan – promise to pay debt if debtor doesn’t.

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Defenses to Formation: Mistake

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factual error regarding a fundamental matter, which has materially effect on agreed exchange. Adversely effected party may then rescind K, provided that that party did not bear the risk of mistake
g. Mutual – both parties suffer from factual error – no K
h. Unilateral – slightly harder – make sure that person did not bear the risk
i. Intermediary – mistake will be construed against the party who chose intermediary

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Defenses to Formation: Illegality

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Subject matter is illegal

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Defense to Formation: Latent Ambiguity/misunderstanding

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not obvious on face of K, but appears as context unfolds. If both parties knew or had reason to know then no K. If neither party knew or had reason to know then no K. If one party knew or had reason to know then it is a K on the innocent parties terms.

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Defense to Formation: Incapacity

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a. Infancy – Ks by minors are voidable, unless for necessity (food, shelter, clothing, medical), or unless minor ratifies after turning 18. If minor is married to adult then Ks are valid
b. Insanity – Voidable by one who is unable to understand the nature and consequences of the transaction
c. Intoxication – voluntary intox. Is not a defense unless other party knew and took gross advantage. Involuntary – a defense if someone spikes your drink – same standard as insanity

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Defense to Formation: Unconscionability

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voidable
d. procedural – refers to absence of meaningful choice in bargaining process
e. Substantive – unreasonably harsh terms

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Defense to Formation: Duress, Fraud, Misrepresentation

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f. Duress – physical = void K, economic (an improper or wrongful threat which leaves no reasonable alternative to agree is voidable
g. Fraud – deliberate act or omission renders K voidable if party deceived to her detriment
h. Misrepresentation – innocent or negligent untrue assertion – voidable if material and induced detrimental reliance

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Terms of the K: Hierarchy

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1. Words – the actual words of K. ambiguous words construed against drafting party
2. Course of Performance – how parties have acted before with that same K
3. Course of Dealing - how parties acted with regards to previous Ks
4. Trade/Custom/Usage of trade – community norms of which the parties are or should be aware

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Terms of K: Parol evidence rule basic definition

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A final writing supersedes prior negotiations and agreements

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Parol Evidence Rule: Matters outside the scope of the rule

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1. Collateral agreements – agreements to Ks which are separate
2. Consent to additional terms – can bring these in to explain some ambiguity
3. Supplemental Course of Dealing/trade custom/Course of performance – not contradictory just explanatory
4. Conditions precedent
5. Consideration
6. Defenses
7. BERG RULE – Extrinsic evidence is admissible to determine Intent and Context surrounding the formation of a K

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Third party rights and responsibilities of K

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A. Third party beneficiaries
B. Assignment of rights
C. Delegation of duties

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Performance

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Performance is due if there are no conditions or the conditions are satisfied or excused"

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Performance: Conditions

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An event, the occurrence of which is uncertain, that will trigger or terminate a party's performance". If the condition is express it is strictly construed, if implied/constructive then substantial performance is good enough
1. Condition Precedent – triggers a duty to perform, must come first
2. Condition Concurrent – simultaneous condition to performance
3. Condition Subsequent – cuts off duty to perform

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Performance: When unsatisfied conditions may be excused

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1. failure to cooperate – other side must cooperate in good faith
2. Substantial performance – discharge of an implied condition
3. Waiver or Estoppel – can waive relying on that condition
4. Impossibility, impracticability, or frustration – discharges duty

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Duty to Perform: Obvious reasons for no further duty to perform

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Obviously discharged when there has been performance, tender of performance, or condition subsequent

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Duty to Perform: Discharge by agreement of parties

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a. Mutual recission
b. Accord and satisfaction – agreement by parties to existing obligation to accept a different performance
c. Modification – valid mod supported by consideration, it will be a new agreement
d. Novation – mutual agreement to substitute a new party to take over the obligation.
e. Account stated – lumps together several accords and satisfactions

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Duty to Perform: Unforeseen, post-formation changes of circumstances

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a. Supervening illegality – subject matter of K becomes illegal
b. Impossibility – literally impossible
c. Impracticability – Unreasonably burdensome – like if war broke out of 10 times increase in cost
d. Frustration of Purpose – performance still possible but purpose destroyed

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Duty to Perform: Statute of Limitations

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for Oral Ks/promissory estoppel it is 3 years. Written Ks 6 years. Starts to run at breach.

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Remedies for Breach: Basic Sentence

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Any deviation from performance entitles the non-breaching party to a remedy

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Remedies: Anticipatory Repudiation

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if person repudiates, may retract at any time prior to performance being due so long as other party has not relied on it

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Remedies: Minor Breach

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slight deviation from promised performance - slight deviation from promised performance. Do not have a right to suspend obligations of K, but can sue for damages

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Remedies: Major Breach

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– undermines the substantial benefit of the bargain - right to suspend own performance obligations and sue for damages

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Remedies: Compensatory damages/Expectations measures

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this is standard – provides aggrieved party with amount of money that would put them in the same position she would have been in had the K been performed.

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Remedies: Compensatory Damages Limitations

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i. Certainty – must be reasonably certain, cant be speculative
ii. Foreseeability – generally foreseeable consequential damages must be known at the creation of the K otherwise not on hook
iii. Avoidability (duty to mitigate) – damages not collectable if they could have been avoided without undue burden

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Remedies: Reliance measure

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Monetary value of detriment acquired. Must return to position she was in before K was made
Two situations it works in – when expectation measure is uncertain or speculative or when Promisorry estoppel claim asserted

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Remedies: Liquidated Damages

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agreed damages – favored in WA if not a penalty. Test for penalty (judged at formation) – enforceable if 1)reasonable forecast of just compensation for 2) a harm that is difficult to measure

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Remedies: Specific Performance

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Available if legal remedy is inadequate, administration of remedy is not unduly burdensome to court OR contract terms are certain and definite. Three categories of cases – can usually do for real estate and goods that are very unique. Never for personal service

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Remedies: Restitution

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Quasi-K relief. There must be a benefit conferred, the conferring party had a reasonable expectation of compensation, the benefits were conferred at express or implied request, and unjust enrichment results.

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Punitive damages

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Not allowed for breach of K, just compensation for P's loss, ct. may award nominal damages.