Contracts Law Ca Baby Bar

Front 1

Main Issues of Contract Law

Back 1

1. Formation
2. Defense
3. Third-Party Rights
4. Performance
5. Remedies

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Statute of Frauds

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MY LGS
Marriage
Year
Land
Goods
Surety (debt of another)

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Formation Issues

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Offer
Acceptance
Consideration

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Defenses to Formation

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1. Indefiniteness
2. Legal Capacity
3. Mistake
4. Misconduct: duress, undue influence, mirepresentation
5. Statue of Frauds
6. Unconscionability
7. Illegality

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Third Party rights & duties

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Third Party Beneficiaries

Assignment & Delegation

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Performance

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1. Intepretation of the Contract
2. Conditions
3. Repudiation & Breach
4. Impracticability & Frustration
5. Discharge

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Remedies

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1. Damages
2. Restitution
3. Specific Performance

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Offer Definition

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An outward manifestation of a present contractual intent to be bound by definite and certain terms, communicated to the offeree creating the power of acceptance.

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Definiteness of Terms

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QTIPS
Quantity
Time
Identity of the Parties
Price
Subject Matter

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Unilateral Contract

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An offer to a unilateral contract involves a promise made by the offeror in exchange for a performance by the offeree.

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Bilateral Contract

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An offer to a bilateral contract involves a promise made in exchange for a return promise.

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Ambigous offer (uni or bi-lateral)

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Where an offer is ambiguous, the offeree can accept by performance or promise by reasonable means.

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3 elements an advertisement must fulfill in order to be an offer

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1. Was there a commitment to a specific action
2. Is it addressed to the general public or to a specific individual
3. Reasonable terms

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Firm Offer (UCC)

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1. Merchant (only the offeror has to be a merchant)
2. Signed writing
3. No consideration
4. Held open for time stated or a reasonable time, not to exceed 3 months.

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Acceptance

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An acceptance is a manifestation of assent to the terms of the offer, made by the offeree in a manner invited or required by the offer.

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UCC 2-207

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The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
1. The offer expressly limits acceptance to the terms of the offer
2. They materially alter it; or
3. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received

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Consideration

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That which is bargained for and given in exchange for a return promise or performance.
1. The promisee must suffer a legal detriment—to refrain from or do an act (unilateral) or to make a promise (bilateral)
2. The detriment must induce the promise
3. The promise must induce the detriment—the promisee must have knowledge of the offer

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A contract can be modified without further consideration if you have the following 3 elements:

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1. The promise modifying the original contract was made before the contract was fully performed

2. The underlying circumstances which prompted the modification were unanticipated by the parties, and

3. the modification is fair and equitable

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Accord and Satisfaction

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If the obligation is unliquidated or in dispute, then the tender by the debtor of a certain sum in full payment of the debt, followed by acceptance and retention of the amount tendered, establishes an accord and satisfaction.

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Modifiction & Consideration under UCC

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1. The party asserting the modification must demonstrate that his decision to seek modification was the result of a factor, such as increased cost, which would cause an ordinary merchant to seek a modification of the contract. Objective test: “would a reasonable merchant have sought the modification under the circumstances”

2. The party asserting the modification must demonstrate that he was, in fact, motivated by legitimate commercial reasons and that such reasons were not offered merely as a pretext (requirement of honesty) Subjective test

3. Is the modification induced by extortion or impermissible means

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Illusory Promise

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words in promissory form that promise nothing; they do not purport to put any limitation on the freedom of the alleged promisor, but leave his future action subject to his own future will, just as it would have been had he said no words at all.

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Output Contract (UCC)

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A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

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Contract Implied in Fact

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This is to Contract Implied In Fact: is based on a tacit promise, one that is inferred in whole or in part from the parties’ conduct, not solely from their words

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Promissory Estoppel

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A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise

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To establish promissory estoppel cause of action, a party must prove that:

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(1) the promisor made a promise that he should have reasonably expected would induce action or forbearance on the part of the promisee
(2) the promisee actually took action or refrained from taking action in reliance on the promise; and
(3) injustice can be avoided only by enforcing the promise.

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Parol Evidence Rule

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What are the terms when there is a written contract, but have been preliminary negotiations and there is disagreement as to whether terms from the preliminary negotiations should be admitted as evidence.

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Elements for admittance of Parol Evidence

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1. The agreement must in form be a collateral one; collateral means ‘side’.
2. it must not contradict express or implied provisions of the written contract
3. it must be one that parties would not ordinarily be expected to embody in the writing

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Integration

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1. Williston—you look within the 4 corners of the pages of the contract and see whether it is an integration, UNLESS using the reasonable person test the additional term would naturally be excluded from the writing. He is not going to look into the intent of the individuals involved.
2. Corbin—you look at the actual intent of the parties. He would bring in testimony about the prior oral or written agreements in order to determine the intent of the parties. Also uses the reasonable person test. In determining what the meaning is, once have reviewed all of the evidence, then apply the reasonable person test. So, in Lucy vs. Zemmer, Corbin would still find a contract, b/c writing was clear.
3. Restatement 2nd—Parol Evidence will be admissible—if the extrinsic evidence is something that the parties would not have intended to have in the writing. Not just the intent of the parties, but whether they would have wanted it to be in writing.
4. UCC Approach (section 2-202)—will allow oral testimony to supplement the agreement where it does not contradict the writing, and where the writing is not a total integration. Under UCC you can also use course of dealing (what transpired between parties), usage of trade (what is standard in the trade), and course of performance (previous contracts between parties).

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The Plain Meaning Rule

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If term has a plain meaning, it must be given that meaning without resort to extrinsic evidence. If the term is ambiguous, then we can bring in extrinsic evidence

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Latent & Patent Ambiguity

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1. A patent ambiguity means that it is obviously ambiguous on its face
2. A latent ambiguity means that it is ambiguous based on the context of the entire contract and what each may have intended

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Criteria for Material Breach

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 What was the purpose of the contract? Has the breach deprived the party of the benefit
 What was the degree of partial performance?
 Can the parties cure the breach? (if it can be cured, then it is less likely to be a material breach)
 Willfulness—if the breach is intentional, then it is more likely to be substantial
 Delays in performance—a delay in performance is assumed not to be material unless it is stated that time is of the essence.

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Grounds for Excuse of Express Condition

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o Frustration of Performance
o Forfeiture: where strict adherence to the express condition would result in a forfeiture, then the condition is excused
o Impossibility:

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General Constructive Condition

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A condition that a party substantially performs before the other party is obligated (to create obligation in the other party). If one party fails to substantially perform, the other party’s remaining obligations are no longer due.

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UCC Perfect Tender Rule

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Goods must be conforming, or else buyer has right of rejection.

Once accepted—buyer has obligation to prove nonconformance

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Installment Contracts

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In an installment contract, you can reject if it substantially impairs the value of the installment and cannot be cured. Can reject the entire contract if non-conformance of the installment impairs the value of the entire contract.

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Quasi Contractual Recovery

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Modern Rule Conditions:
 Benefit conferred
 Expectation, a bargain is formed
 The defendant is unjustly enriched
 The Plaintiff must come to the Court of Equity with ‘clean-hands’ – that they did not do any act in bad faith

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Election

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Occurs after the failure of the condition. If a party, prior to that condition being satisfied, can wait. If a condition is supposed to occur at a certain point. After the condition fails, if a party waives the condition, it is an election. They have elected to waive it.

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Anticipatory Repudiation

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Repudiation is the failure of an implied condition to proceed in good faith and not interfere with the other party. In order for the repudiation to be valid, it has to be a direct repudiation, and not implied. If one party merely says, “I don’t think I will have the money in time.” This is not a repudiation, because it is not clear and strong enough.

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Ambiguous Repudiation

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If one party makes an ambiguous repudiation then the other party has to make a demand for assurances. This ambiguous repudiation can be by word or by deed (i.e. bankruptcy).

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Impossibility

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Objective Impossibility: It is impossible to fulfill the condition or contract. i.e. if it is for sale of a building and the building burns down—it is impossible.

Subjective Impossibility: An attorney contracts with another attorney to prosecute a tort claim. The contracted attorney then becomes a judge. It is impossible for that person to perform, but the act can still be performed.

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Impracticability:

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usually commercial impracticability—it would be so expensive for a party to continue perform that it becomes virtually impossible. Unanticipated and extreme expense.

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Frustration of Purpose:

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A person leases an apartment so that he can watch a coronation. The coronation gets cancelled. He could still rent the apartment, but the purpose for doing so is eliminated.

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Expectation Damages / Consequential Damages

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 Expectation damages should put the party back into the condition they would have been in had the contract been performed. This includes lost profits.
 Expectation Damages have to be proven with reasonable certainty.
 If you can’t prove expectation damages, you get reliance damages = out of pocket
 When you can obtain expectation interests, you can get both a remedy at law and an equitable remedy.

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Reliance Damages

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 Reliance damages are out-of-pocket expenses
 Wasted expenditures are those made prior to concluding the contract
o In order to get wasted expenditures, the parties have to contemplate that those expenditures would be wasted.
 Essential reliance damages are those that are incurred in direct performance of the contract
 If there are foreseeable incidental damages over and above what would be required to perform the contract.

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FIVE Situations where Merchant Rule is Applicable

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1. Good Faith: reasonable commercial standards of fair dealing in trade (non-merchants is subjective test)
2. Firm Offers
3. Battle of the Forms: additional non-material terms become part of contract
4. Implied Warranties
5. Statute of Frauds - requirement for memorandum is more liberal, acknowledgement (doesn't have to be signed)

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UCC Formation

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- May be formed in any manner sufficient to show agreement, including conduct
- Intent to make a contract
- Reasonably certain basis to give an appropriate remedy

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UCC Acceptance

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Mode of Acceptance: in any manner and by an y edium reasonable in the circumstances.

Acceptance by shipping Goods: by actual prompt shipment of goods, or by prompt promise to ship goods

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Shipment of Non-conforming Goods

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1. both an acceptance and a breach

2. if it includes a notice that this is an accomodation, then this is a counter-offer

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Battle of Forms

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1. even if form comes back with different terms, it is considered an acceptance, unless the offer was expressly limited to the terms of the original offer
2. if terms differ, (not merchants) then they are proposals for addition to the contract
3. if terms differ (merchants) then the terms become part of the contract unless:
- materially different
- offeror objects in a reasonable time
- express limiting condition
Differing terms are knocked out (majority rule)

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Incidental Damages

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Out of pocket expenses, i.e. truck is broken down, cost of a rental truck would be incidental, or staying in a hotel

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Reliance Damages

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 Only use if not getting general damages, i.e. b/c no valid contract
 Reliance damages are out-of-pocket expenses
 Wasted expenditures are those made prior to concluding the contract
o In order to get wasted expenditures, the parties have to contemplate that those expenditures would be wasted.
 Essential reliance damages are those that are incurred in direct performance of the contract
 If there are foreseeable incidental damages over and above what would be required to perform the contract.

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Specific Performance

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1. There must be an inadequate remedy at law,

2.Something unique, i.e. land

3. The party seeking the equitable remedy must also have done equity
i. Balancing hardship
ii. Parties in good faith

4. The case must be likely to have success on the merits

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Laches

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A Defense to Equitable Remedies. When a party sits on its rights and creates further damages

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Restitution

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 Prevent unjust enrichment
 Restitution is not based on contracts, it is a separate area of the law that spans contracts, torts, etc.
 Contract is void due to formation problems, i.e. discharged for impossibility or frustration of purpose.
 If one party has partly performed, then they recover for that partial performance through restitution.
 Example: if the contractor builds a house and gets it ½ done then breaches. Contractor is the breaching party, but he still gets restitution. In this case, would recover for reasonable value of materials & labor.
 Don’t get expectation damages, just get the amount to prevent unjust enrichment.

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Liquidated Damages

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o Is the liquidated damages clause a true estimation of the actual damages
o If it is vague and doesn’t specify the reason for the penalty
o Liquidated damages clause can include a provision for attorney’s fees if one side is in breach

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Damages Perfect Tender Rule – Non-Conforming Goods

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Value of goods contracted for – value of goods received = amount of recover

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3rd Party Beneficiary vs. Incidental

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 Is performance to be rendered directly to the 3rd party?
 Do express provisions in the contract create rights in the 3rd party?
 Are the 3rd parties specifically named?
 Is there a close relationship between the promise and the 3rd party?

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3rd party beneficiary vest when:

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1. Manifests his assent to the promise (with minors, acceptance is presumed)
2. Brings suit
3. Or materially changes his position in reliance upon the promise

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Sufficiency of memorandum (SoF)

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 Must be signed by the party to be charged
 Must specify a quantity
 If you have merchants—all you need is a memorandum (not signed) as long as it was sent and not objected to within 10 days

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Elements of Novation

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1. Agreement between all 3 parties
2. Substitution of the new party
3. New consideration for the contract

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UCC Pre-litigation Remedies (Seller)

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- with-hold delivery
- reclaim goods
- re-sell and sue for damages

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UCC Pre-litigation Remedies (Buyer)

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- Cover (purchase substitute goods to mitigate damages)
- Restore (return) goods for repayment and sell if refused

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UCC Expectation Damages (seller)

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Difference between market price at time of tender and unpaid contract price

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UCC Expectation Damages (buyer)

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Contract - cover differential

Contract - market differential

Incidental damages