1
Q
Valid Contract?
A
- offer
- acceptance
- consideration
- no defenses to formation or enforcement
2
Q
Offer
A
- Manifestation of a present intent to contract demonstrated by a promise, undertaking or commitment;
- Communicated to an identified offeree; and
- Definite and certain terms
Advertisements NOT offers; RESPONSE to the ad could be an offer
3
Q
Has offer been terminated?
A
- Lapse of time (accepted within specified time or reasonable time if not specified)
- Revocation
- Rejection
- termination by operation of law
4
Q
Revocation
A
Revocation is effective when received by offeree
Certain offers are irrevocable:
- merchants firm offer
- option contracts
- detrimental reliance
(often will involve a subcontractor relying on bid and submits general bid in reliance)
- beginning of performance of unilateral contract
5
Q
Merchant’s Firm Offer (UCC)
A
Merchant promises to hold offer open in signed writing –> then fully enforceable for up to 3 months (even without consideration), unless
ONLY APPLIES TO GOODS UNDER UCC
*if no time period stated within the offer, then only enforceable up to 3 months
*option contracts NOT limited to three months
6
Q
Rejection
A
Effective upon receipt
- attempting to accept after a rejection is a new OFFER
Counteroffer will act as a rejection.
– Mere inquiry is NOT a counteroffer.
7
Q
Acceptance Under Common Law = Mirror Image Rule
A
Acceptance of each and every term of the offer; mirror image
Any deviation results in rejection and counteroffer
8
Q
Detrimental Reliance / Promissory Estoppel
A
- Promisor makes promise with knowledge that offeree will rely on promise;
- Offeree reasonably relies on promise to their detriment;
- Fulfilling promise is only way for equitable fairness
*equitable relief if no valid consideration
9
Q
Acceptance Under UCC = Battle of the Forms
A
Inclusion of additional/different terms by offeree in a definite and timely acceptance does not constitute a rejection/counteroffer, unless the acceptance is made expressly conditional on the different terms
10
Q
Mailbox Rule
A
Acceptance is effect upon dispatch, when properly mailed/posted
UNLESS offeror opts out (rejection was sent first)
11
Q
Material Change under Battle of the Forms
A
Material Change = would result in surprise/hardship if done without the other party knowing; substantially affects economic risks/benefits
- indemnification
- disclaimer of warranties
- change that alters usual remedy for breach of K
*if modification is material change, will not become part of the contract
12
Q
Acceptance of Bilateral Contract
A
Accepted by promise to perform or by the beginning of performance, unless otherwise specifically stated
Silence typically not acceptance unless reasonable if result of prior trade practices/dealings
Under UCC, Acceptance Can be:
(1) promise to ship OR
(2) current/prompt shipment of conforming goods;
(3) prompt shipment of nonconforming goods
13
Q
Prompt shipment of nonconforming goods under UCC & Rules of Accommodation Notices
A
Results in ACCEPTANCE and breach; unless seller provides accommodation notice (this will be a counteroffer)
Nonconforming goods can be accepted in whole OR rejected in whole by Buyer
- If accepted –> contract for non-conforming goods is formed!
14
Q
Acceptance of Unilateral K
A
Only complete performance constitutes acceptance of offer
- Not required to give offeror notice that he’s begun performance, but must give notice within reasonable time after performance completed
15
Q
Consideration
A
Bargained for exchange AND detriment to promisee or legal benefit to promisor
Valid consideration if:
- promises to do something that he has a legal right not to do
- promises not to do something he has a legal right to do
- engages in behavior he has a legal right not to engage in
- refrains from behavior he has a legal right to engage in
Examples:
promise to quit smoking/actually quitting smoking = valid consideration
Promise to quit using cocaine = invalid because illegal
Returning a pet and then learning of an offer/reward after return = invalid consideration
16
Q
Preexisting Duty Rule
A
Past consideration is generally invalid; performing or promising to perform for an existing legal duty = past consideration
17
Q
Exceptions to Preexisting Legal Duty Rule
A
- Written promise to pay time-barred debt
- New or different consideration promised
- Promise ratifying voidable obligation (minors contract)
- Compromise of honest dispute
- Unforeseen circumstances make modification fair/equitable (modern rule) OR rise to impracticability (majority)
- Good faith modification under Article 2
18
Q
Promissory Estoppel/Detrimental Reliance means consideration is NOT necessary if following elements exist:
A
- Promise was made;
- Was reasonably foreseeable / expected for the promisee to rely on the promise by the promisor
- Promisee reasonably relied on the promise to their detriment
If available, entitled to reliance damages
19
Q
Valid Defenses to Contract Formation
MFIISU
A
- Mistake
- Fraud/Misrepresentation
- Illegality of consideration/subject matter
- Incapacity
- SOF
- Unconscionability
20
Q
Unilateral mistake
A
Contract is voidable if non mistaken party knew or should have known of mistake
21
Q
Mutual mistake
A
Contract voidable by adversely affected party if:
- Mistake concerns basic assumption on which the contract was made;
- Mistake has material effect;
- Party seeking avoidance did not assume risk
22
Q
Ambiguous Terms
A
If one party is aware of ambiguity –> contract valid.
Neither party aware OR both parties aware –> NO contract
23
Q
Fraud/Misrepresentation
A
Fraudulent Misrepresentation:
If party induces another to enter into K by using fraudulent misrepresentation, the K is voidable by the innocent party if the justifiably relied on the fraud misrepresentation.
Material Misrepresentation:
K is voidable by the innocent party if the innocent party justifiably relies on the misrepresentation and the misrepresentation is material.
24
Q
Illegality
A
If consideration or subject matter is illegal –> K void.
Exceptions:
1. The P is unaware of the illegality while the D knows of the illegality;
2. Parties are not in pari delicto (one not as culpable as other)
3. Illegality is failure to obtain license when license is for revenue-raising purposes rather than public protection
25
Incapacity
1. Infancy (minors contract)
- EXCEPTION: if for necessaries (health, subsistence, education) --> minor will still be liable in restitution for value of benefits received
2. Mental Incapacity: incapable of understanding nature/significance of the K
3. Intoxicated Persons: don't understand the significance of their promise
26
Statute of Frauds = NEEDS to be in WRITING
MYLEGS
1. Marriage (even "if you marry my son"
2. Year - promises that cannot be performed within one year from date of K
3. Land - promises creating interests in land (lease/easement/fixture/mineral rights/mortgages)
4. Executors - promises to pay estate debts from own funds
5. Goods - contracts for sale of goods over $500
exception: specially manufactured goods
6. Suretyship: promise to pay debt of another
27
Unconscionability
Court may modify/refuse to enforce the entire K or provision if there was an **unfair surprise OR oppressive terms**
look for:
- inconspicuous clauses that shift risk
- release liability for intentional wrongdoing
- limiting liability to damages
- limit parties to certain remedies
28
Contract Interpretation / Rules of Construction
1. General Rules
2. Parol Evidence Rule
3. Article 2 Provisions
- gap fillers, delivery terms/risk of loss, warranties & disclaimers
4. Modifications
29
General Rules of K Construction
1. Contracts construed as whole
2. Words generally given ordinary meaning
3. Written/typed terms prevail over printed
4. Custom/usage in business and locale is considered
5. Court will try to find valid K
6. Ambiguities construed against contract preparer
30
Parol Evidence Rule
When parties intend that a writing be a final expression of their bargain, no prior (oral or written) or contemporaneous (oral) expressions are admissible to vary the terms of the writing
*watch out for fact patterns where only one part reduces agreement to writing (employer K) = no parol evidence here because both parties need to intend writing to be final agreement
*Terms of writing may be explained or supplemented by CONSISTENT ADDITIONAL terms; unless, court finds from ALL circumstances that writing was intended to be a complete and exclusive statement of the parties agreement
31
Integration
1. Was writing intended as final expression of agreement?
2. Whether the integration was complete or partial?
*To determine: court will look to whether the parties intended the writing to be the complete and exclusive statement of their agreement, it must be determined whether parties situated like the parties to this contract would naturally and normally include the extrinsic matter in writing.
32
Exceptions to SOF
1. Merchants confirmatory memo
2. Admission in court
3. Specially manufactured goods
33
Merchants confirmatory memo
In agreements between merchants, if one party reasonably after oral conversation sends the other party a written confirmation. Will bind the recipient if:
- Have reason to know of the confirmation's contents;
- do not object to writing within 10 days of receipt
34
If Writing Evidences Complete Integration
the writing cannot be supplemented/contradicted
If merger clause present = agreement is complete on its face
35
If Writing Evidences Partial Integration
Writing cannot be CONTRADICTED, but can be SUPPLEMENTED with additional, consistent terms
*Think of artwork problem: art work by a different painter could not be included (contradictory) but the Frame for a discounted price could be included (supplemental additional) didn't conflict with the art piece itself
36
Evidence outside scope of parole evidence rule (may be admitted):
1. Evidence relating to validity (formation defects, conditions precedent)
*oral condition precedents fall OUTSIDE scope of parole evidence rule!
2. Evidence used to interpret (words uncertain / ambiguous)
3. Evidence showing true consideration paid
4. Evidence in action for reformation
37
Gap Fillers Under Article 2
If missing:
Price --> reasonable at time of delivery
Place of delivery --> seller's business
Time of shipment --> reasonable
Time for payment --> upon receipt of goods
Assortment --> buyer's option
NO FILLER FOR QUANTITY
38
ROL in Noncarrier Cases
If merchant seller --> risk passes to buyer upon taking physical possession
Nonmerchant seller --> risk passes upon tender of delivery
39
ROL in Carrier Cases
Shipment: risk passes to buyer when seller delivers to carrier (no specific destination designated)
Destination: risk passes on tender at destination (FOB, Buyer City)
F.O.B: risk passes on delivery at FOB location
FAS: ROL passes to buyer once goods are delivered to dock
*UCC presumes shipment K in absence of agreement*
40
Implied warranty of merchantability
Implied in every contract by merchant of goods of the kind sold
Disclaimer: must mention "merchantability" and must be conspicuous if in writing
Can be disclaimed by "as is" / refusal to examine/course of dealing
41
Implied warranty of fitness for a particular purpose
Implied whenever any seller has reason to know of a particular purpose for which goods to be used that buyer is relying on sellers skill / judgment to select goods and the buyer does in fact rely.
Disclaimed by:
by conspicuous writing or general disclaimer "as is"
42
Express Warranties
Any affirmation of fact/promise made by the seller to the buyer that buyer could have relied on when entering into the K
- description of goods/model/sample
- typically cannot disclaim express warranties
Implied warranties disclaimed by "as is" or "without fault"
43
Warranty of Title
Any seller of goods warrants that the title transferred is good, the transfer is rightful and no liens/encumbrances
*automatic/implied warranty
Disclaimed by specific language/circumstances that put buyer on notice that seller is not claiming title "as is" "no guarantees"
44
Warranty against infringement
Merchant seller regularly deals in goods of the kind sold automatically warrants the goods are delivered free from patent, trademark, copyright/similar claims
If buyer furnishes specifications for goods, cannot hold seller liable for those claims
45
Common Law - Modification of terms
General Contract Law: additional consideration needed for the modification
- look for "preexisting duty" in answer choice if CL question
Modern view: permits modification without additional consideration if due to circumstances that were unanticipated by the parties when the contract was made and it's fair and equitable
*written contract can be modified orally even if there is a contrary provision*
46
UCC - Modification of Contracts
- No consideration needed as long as in good faith (must have a reason other than one party trying to get more money)
- If contract as modified if for more than $500 worth of goods --> must be in writing
- Gives effect to provisions prohibiting oral modification
47
Performance Under UCC and Common Law
Common law: duty to substantially perform all that is called for in a K
Article 2: perfect tender --> delivery/conditions must be exactly as promised
*if not satisfied, could be grounds for breach*
48
Conditions
Failure of a condition is not a breach, but discharges liability of the promisor whose obligations on the conditional promise didn't happen.
49
Condition Precedent
One that must occur before an absolute duty of immediate performance arises in the other party
If condition is "satisfaction" = reasonable person standard, unless with regard to creative express/personal judgment --> then only met if promisor is personally satisfied
50
Condition concurrent
Capable of performing together; parties bound to perform at the same time
51
Condition subsequent
When it occurs it cuts off an already existing duty of performance
52
Ways that a condition can be excused?
1. Hindrance/failure to cooperate
2. Breach of K
3. Anticipatory Repudiation
4. Substantial performance
5. Divisibility of Contract
6. Waiver/Estoppel
53
Hindrance/Failure to Cooperate
If party having duty of performance is subject to a condition that prevents the condition from occurring --> condition will be excused if wrongful (other party wouldn't have reasonably contemplated/assumed risk)
54
Waiver of Conditon
By words/conduct/voluntary giving up
55
Estoppel Waiver
1. Party indicates their waiving condition before it happens or they are waiving performance before it's to be rendered
2. Person addressed detrimentally relies on the waiver --> court holds as binding estoppel
56
Election Waiver
When condition doesn't occur; beneficiary of the condition or duty must make an election to:
1. terminate their liability;
2. continue under the contract
57
Anticipatory Repudiation
Promisor, prior to the time of performance of their promise, indicates that they won't perform when the time comes --> immediate claim for breach
Non-repudiating party has 4 options:
1. treat anticipatory repudiation as a total repudiation and sue immediately
2. Suspend their own performance and wait to sue until performance date
3. Treat the repudiation as an offer to rescind and treat K as discharged
4. Ignore the repudiation and urge promisor to perform
58
Typical Anticipatory Breach Situations on MBE
1. Clear statement of repudiation, but NO reliance --> retraction is permitted
2. Expression of doubt rather than clear intent not to perform --> not anticipatory breach
3. Clear oral repudiation but choices imply a writing may be required
--> NO WRITING REQUIRED FOR ANTICIPATORY REPUDIATION
59
Excuse by Substantial Performance
1. Condition of complete performance may be excused if the party has rendered substantial performance
2. Courts typically only apply if a constructive condition is involved; NOT an express condition
60
Excuse by Divisible Contract
If K is divisible and a party performs one of the units of the K --> entitled to the agreed-on equivalent for that unit even if other units haven't been completed
61
Divisible Contract Elements
1. Performance by each party can be divided into two or more parts under the K;
2. Number of parts due from each party is the same;
3. Performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party
*nonbreaching party has a cause of action for each of the unperformed units and may withhold counterperformance for those units
62
Duty to perform could be discharged from one of the following:
1. Performance has been completed
2. Condition subsequent occurs
3. Illegality of subject matter of K
4. Impossibility, impracticability, frustration of purpose
5. Rescission of contract
6. Modification
7. Novation
8. Accord and Satisfaction
63
Rescission (Mutual vs Unilateral)
Grounds for Rescission
Mutual: express agreement between the parties; excuse both from obligations
Unilateral: party desiring must have adequate legal grounds - mistake, misrepresentation, duress, failure of consideration
Grounds for rescission:
1. Mutual mistake of material fact
2. Unilateral mistake if other party knew/should have known
3. Unilateral mistake if hardship by mistaken party is so extreme
4. Misrepresentation of fact/law by either party as to material fact in negotiations that was relied upon
5. Duress, undue influence, illegality, lack of capacity, failure of consideration
64
Accord and Satisfaction
Agreement where one party to the existing K agrees to accept some or different performance, in lieu of the original performance that they're supposed to receive from the other party
Look for "if...then"
Accepting and cashing a check with "full performance" noted is a sufficient accord and satisfaction
65
Novation
1. A new K substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old K
2. Requires consent of all parties
3. will discharge the old K
66
Impossibility
Duties could not be performed by ANYONE
Must arise after K has been entered into
- could be partially discharged/temporarily discharged
Look for:
- death/physical incapacity
- supervening illegality
- subsequent destruction of K matter
- contracts to build
67
Contracts to Build and Impossibility
If renovation vs. if constructing
If constructor was working on renovation --> destruction discharges duties by impossibility.
If contract was constructing the building, destruction DOES NOT discharge contractor duties.
Contractor responsible for destruction of the premises under construction prior to completion; once completed --> ROL shifts to owner
68
Impracticability
1. Extreme and unreasonable difficulty and/or expense
2. It's nonoccurence was a basic assumption of the parties
69
Frustration of Purpose
1. Supervening act/event leads to frustration
2. Parties did not reasonably foresee the act/event occurring;
3. Purpose of the K has been completely/almost completely destroyed by this act or event
4. Purpose of the K was realized by both parties at time of making the K
70
Common law - Breach?
Minor/Material?
Minor breach: obligee gains the substantial benefit of bargain so the aggrieved party must perform, but has right to damages
Material breach: obligee does not gain substantial benefit of bargain so no duty to perform, immediate right to damages and other remedies
71
Factors to determine whether breach has been minor/material:
1. Amount of benefit received by non breaching party
2. Adequacy of compensation for damages to injured party
3. Extent of part performance by the breaching party
4. Hardship to the breaching party
5. Negligent/willful behavior of breaching party
6. Likelihood breaching party will perform remainder of K
*failure to perform within stated time = NOT material breach unless "time is of essence"
72
Perfect Tender Rule UCC
If the goods or delivery fail to conform to the K in any way, the buyer may:
1. reject all
2. accept all
3. accept in part
4. reject in part
73
Exceptions to perfect tender rule
1. Seller's right to cure defect within reasonable time for performance
2. Seller's right to cure beyond original K time
3. Installment K's
74
Seller's Right to Cure Defect Within Time for Performance
1. Cure by giving reasonable notice of intent to do so;
2. Make new tender of conforming goods that buyer must accept by the original due date
75
Seller's Right to Cure Beyond the Original K time
Buyer rejects non-conforming goods that seller reasonably believed would be acceptable;
upon reasonable notification to buyer --> seller has further reasonable time beyond the original K to make conforming tender
Look to: trade practices/prior dealings
76
Installment K's can be rejected ONLY if:
1. Nonconformity substantially impairs value of that installment and cannot be cured
2. Whole K breached if non-comformity substantially impairs value of entire K
77
Once breach happens, what remedies are available?
1. Specific Performance
2. Damages
3. Restitution
4. Rescission/Reformation
78
Specific Performances
Only awarded when court concludes that money damages would not be adequate
Available for:
- Real Estate
- Sale of goods if UNIQUE/ART
- Not available for services typically
79
Specific Performance
If damages are inadequate, court may order breaching party to perform (land or rare/unique goods)
80
Compensatory Damages
1. Expectation damages
- put non breaching party In position they would have been in had breach not occurred
- non breaching party will be awarded the benefit of the bargain she would have received
- always available
Incidental Damages = always recoverable
2. Consequential = may be recovered if at time K was made a reasonable person would have foreseen these damages
- occur after the breach due to the particular situation of non-breaching party
- breaching party knew of these circumstances at the time of the K
- can be proven w/ reasonable certainty
81
Damages are Foreseeable if
Breaching party would have known at the time of the K that these damages would likely result from a breach
82
Common Law Damages Key Points
1. Must be certain and not speculative; ascertainable with reasonable certainty
2. Damages must take into account costs that were avoided as a result of the breach (could lower overall recovery)
3. Non-breaching party has a duty to mitigate damages; should not be able to recover damages that are avoidable
83
Liquidated Damages
If actual damages difficult to calculate at time of contracting, amount is a reasonable forecast of the likely damages (not punitive)
84
Buyers Damages if Seller is in Breach:
1. Cover (K price - Cost of replacement)
2. Difference between contract and market price
3. Warranty damages (if accepted nonconforming goods)
4. Consequential damages (if seller knew of buyer's needs)
85
Sellers Damages if Buyer is In Breach: UCC
1. Resale price = K price - Resale Price
2. Market price = K price - Market Price
3. Lost profits (lost volume seller) = K price - cost to seller
86
Damages for breach of land sale K
Difference between contract price and FMV
87
Employment Contract Breach
Employer breach: full contract price
Employee breach: cost to replace employee
88
Damages for Construction Contract when Breached by Owner
Before construction = builder's prospective profits
During construction = profits + cost expended
If after completed construction = full K price + interest
89
Damages for Construction Contract When Breached by Builder
If before/during --> owner entitled to cost of completion + reasonable compensation for delay
If late completion --> damages because of value of lost use
90
Intended third party beneficiaries
3rd party beneficiary is intended when:
1. identified in the contract;
2. receives performance directly;
3. has some relationship w/ promisee to indicate intent to benefit
*Intended third party beneficiaries can be EITHER creditor or donee beneficiaries; as long as they are "intended"
Intended beneficiaries can only enforce contract rights once vested!
Being intended beneficiary doesn't automatically mean rights have vested
91
Intended 3rd Party Beneficiaries Rights have VESTED (can enforce the contract) when:
1. Manifested assent;
2. Brought suit to enforce the promise; or
3. Materially changed position in justifiable reliance
92
Rights of Third Party Beneficiaries
1. Promisor can raise any defenses against third party as he could against promisee
2. If promisor fails to perform:
- Donee beneficiary --> may not sue promisee unless detrimental reliance
- Creditor beneficiary --> may sue promisee on underlying obligation
*3rd party beneficiary may sue BOTH promisor/promisee but may obtain only ONE satisfaction
93
Assignment of Rights
1. Two parties contract;
2. One party assigns rights to 3rd party
3. Assignee can enforce rights againt obligor
94
Revocability of Assignments
Assignments for Value = generally NOT revocable (done for consideration; taken as security for preexisting debt)
Gratuitous assignment = generally revocable
95
Delegation
All duties delegable EXCEPT:
1. Duties that involve personal skill/judgment
2. would change obligee's expectancy
3. A special trust was reposed in the delegator by the other party to the K
4. Contractual restriction on delegation
- Can be written/oral
- must manifest a present intention to make delegation
96
Where a delegate's promise to perform the delegated duty is supported by consideration, what results?
A third party beneficiary situation!
The non delegating party to the contract can compel performance or bring suit for nonperformance.
97
No ASSIGNMENT Clause on BAR =
NO DELEGATION CLAUSE
98
Writing Requirements for SOF
1. Identity of parties
2. Description of subject matter
3. Terms necessary to make K definite
4. Must be signed by party to be charged
99
If writing requirements for a K under SOF fails, are there any other ways to satisfy SOF?
1. Land sale K = part performance (sufficient to justify purchase; not just paying rent) must unequivocally indicate K for land
2. Services contract = upon full performance by either party
3. Sale of goods:
- Goods accepted/paid OR
- Goods specifically manufactured and seller has begun performing
100
101
When can a K be modified/cancelled without the consent of a third party beneficiary?
At any time until the rights of the 3rd party beneficiary have vested!
Once rights vest --> 3rd party beneficiary must give consent
If no vesting has occurred --> don't need their consent
102
Right to Demand Assurances
1. If reasonable grounds for insecurity with respect to a party's performance;
2. Other party may demand in writing assurances that the performance will be forthcoming at a proper time
- party may suspend their own performance until they receive adequate assurances;
- if not received within 30 days --> treat K as repudiated
