Contracts Quick Set/Rule Statements

Choice of Law

UCC applies to the sale of goods. Common-law applies to everything else.

Definition of a good

UCC 2-105(1): A good means all things that are (1) movable (2) at the time of identification to the contract

Seller-severed items

UCC 2-107

Seller-severed items: these are goods if they are to be severed by the Seller: Minerals, Oil, Gas; A structure or its materials to be removed from realty

Either-party severed items: these are goods whether severed by the buyer or seller: growing crops; timber to be cut; other things attached to realty that can be severed without material harm to the land

Predominant Purpose Test

Determine if the predominant purpose of the transaction is the rendition of services or the sale of goods

Factors for the Predominant Purpose Test

(a) language of the contract (b) nature of seller’s business (c) value attributed to goods vs. the services

Gravaman Test

Determine the Essence of the Complaint

Formation Elements

(1) Mutual Assent

(2) Consideration

Mutual Assent Elements

(1) Offer

(2) Acceptance

Objective Theory

A party’s manifestation of assent is judged by an objective reasonable interpretation of his outward expression of consent

Promise Elements

(1) Manifestation of Intention

(2) to act or refrain from acting

(3) so made as to justify a promisee in understanding that a commitment has been made

Exceptions the the Objective Thoery

(1) both parties have the same subjective interpretation

(2) one party knows or should know of the different interpretation used by the other party, and not vice verse

(3) each party has a different interpretation and both interpretations are reasonable → contract not formed if the difference has a material effect

Consideration Elements

(1) Bargained-for exchange

(2) Legal Value

Bargained-for Exchange

(1) the promise must induce a detriment

(2) the detriment must induce the promise

Legal Value

(1) a legal detriment to the promisee, OR

(2) a legal benefit to the promisor

Gratuitous Promise - Executory Promise

Lacks consideration and is unenforceable as a contract

Gratuitous Promise - Executed Promise

If the promise ends up being executed, then the promisor cannot rescind the promise

Promises Between Family Members

There is a rebuttable presumption that services rendered among family members are gratuitous.

Conditional Gift

the occurrence of the condition activates the gratuitous promise

Inadequacy of consideration

Does not void a contract. No requirement that the things exchanged be of equal value

Adequacy of Consideration Continuum: Equal Exchange

Enforceable

Adequacy of Consideration Continuum: Unequal exchange

Enforceable

Adequacy of Consideration Continuum: Gross Inadequacy

Enforceable. But may provide evidence for a defense

Adequacy of Consideration Continuum: Nominal Consideration

Consideration is Nominal if it is the pretense of a bargain. Promisor intended to give a gift and consideration is a formality. Not Enforceable

Illusory Promise R2d 77(a)

When the promisor reserves a choice of alternative performance unless each of the alternative performances are supported by consideration

Exceptions to the Illusory Promise Rule

Output Contracts

Requirements Contracts

Output Contracts

Seller obligates himself to sell a particular good only to the buyer, and the buyer is obligated to purchase all that the seller produces of a particular type of good

Requirements Contracts

Buyer Obligates himself to purchase a particular type of good only from a particular seller. The seller is obligated to have enough of the good to sell in order to meet all of buyer’s requirements

Past Consideration Rule

A promise based on past consideration is generally unenforceable since it was not bargained for

Moral Obligation Rule

Moral obligation will not serve as consideration for the enforcement of the promise; however it may be an independent basis to prevent unfairness or unjust enrichment

Exceptions to the Moral Obligation Rule

(1) Subsequent promise to pay debts

(2) Promissory Restitution

Promissory Estoppel - R2d 90(1)

(1) a promise

(2) foreseeable action or forbearance

(3) the promisee takes action or forbearance in reliance on the promise

(4) injustice can only be avoided by enforcing the promise

Unjust Enrichment

A person who is unjustly enriched at the expense of another is entitled to restitution

Two Types of Unjust Enrichment

Quasi-Contracts

Promissory Restitution

Promissory Restitution

A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice

Factors:

(1) definite and substantial character of the benefit received

(2) formality in making the promise

(3) part performance of a promise

(4) Reliance on the promise or the probability of reliance

When will a court order restitution for a Quasi-Contract/implied in law contract?

(1) the plaintiff has conferred a benefit on the defendant

(2) the defendant has knowledge or appreciation of the benefit

(3) the defendant has accepted or retained the benefit conferred

(4) it would be inequitable for the defendant to retain the benefit

Exceptions to a Quasi-Contract

(1) a party officiously confers a benefit

(2) a party has conferred a gratuitous benefit

Restitution for saving lives

(1) he acted inofficiously and with intent to charge

(2) the things or services were necessary to prevent harm

(3) the person supplying them had no reason to know that the other would not consent

(4) it was impossible for the other to give consent

Restitution for saving property

(1) he was in lawful possession or custody of the property

(2) it was reasonably necessary before it was possible to communicate with the owner

(3) he had no reason to believe that the owner did not want him to act

(4) he intended to charge

(5) the property have been accepted by the owner

Offer Rule

(1) a manifestation of present intent to enter a bargain

(2) stated in certain and definite terms

(3) communicated to an identified person or persons

(4) offeree reasonably understands that a contract would result

Offer Element: Certainty of Terms - R2d 33

(1) parties

(2) scope of work/property transferred

(3) price to be paid

Conduct can make up for lack of express terms under UCC

Preliminary Negotiations R2d 23

A manifestation of willingness to enter a bargain is not an offer

Agreements to Agree

An offer that has bee accepted but leaves out essential terms, with the idea that the parties will have to agree on those terms later

Advertisements

not offers but merely invitations to bargain

Acceptance - R2d 50(1)

(1) a manifestation of assent

(2) to the terms made by the offeree

(3) in the manner invited

Manifestation of Assent for Acceptance

Unequivocal and Unqualified

The Terms of the Offer for Acceptance

Mirror Image

Manner invited or required for acceptance

Offeror can specify how acceptance is given. If no specification, offeree can accept in any manner reasonable in the circumstances

True Unilateral Contract

Offer must implicitly or explicitly invite acceptance by performance only

Termination of the power of acceptance

(1) Acceptance

(2) rejection

(3) Revocation

(4) Counteroffer

(5) Lapse of Time

(6) Death or Incapacity of offeror or offeree, or destruction of subject matter

Lapse of Time - Terminating the Power of Acceptance

(1) at the specified time

(2) if not specified, at the end of a reasonable time

Acceptances at Auctions Rule

Bidder is the offeror

Auctioneer is the offeree

Silence as Acceptance Rule

Silence is not normally acceptance

Exceptions:

(1) offeree indicates that silence is acceptance

(2) in past business dealings, the parties operated so that silence was acceptance

(3) the offeree has exercised dominion over the consideration that was offered

Mailbox Rule

Wen sent by mail, acceptance is effective on dispatch

Everything else is effective on receipts

Exceptions: options contracts, federal government contracts, offeree sends rejection then acceptance

Irrevocable Offers

(1) Options Contracts

(2) Conditional Contracts

(3) Promissory Estoppel

(4) Part performance of a unilateral contract

(5) Merchant’s Firm Offer

Options Contracts

a contract that holds an offer for an underlying K open for a specified period of time. Must be supported by consideration

Conditional Contracts

Condition precedent: if condition is satisfied, contract forms

Condition subsequent: contract formed. If condition satisfied, certain duties of performance arise/defeated

Pre-Acceptance Reliance - Promissory Estoppel R2d 90(1)

A promise which the promisor should reasonably expect to induce action on the part of the promisee, and which does induce such action, is binding if injustice can be avoided only by enforcement

Part Performance of a True Unilateral Contract R2d 45

the contract becomes irrevocable once a party begins performance of the contract

Merchant’s Firm Offer UCC 2-205

(1) an offer
(2) by a merchant
(3) to buy or sell goods
(4) signed in writing
(5) gives assurance that the offer will be held open
(6) during the stated or a reasonable time
(7) not exceeding three months

Longer than 3 month period under UCC Firm Offer Rule

Enter an option contract

Definition of a Merchant UCC 2-104

(1) who [a] deals in goods of the kind or [b] otherwise by his occupation holds himself out as having knowledge of the practices or goods involved

(2) such knowledge or skill may be attributed by his employment of an agent or broker

Defenses Occurring at Contract Formation (Goes to Validity)

(1) Duress

(2) Undue Influence

(3) Misrepresentation / Nondisclosure

(4) Unconscionability

(5) Mistake

Defenses Occurring After Contract Formation (Goes to enforceability)

(1) Impracticability

(2) Frustration of Purpose

(3) Statute of Frauds

When is a Contract Rendered Void?

Physical Duress Only

Statute of Frauds Analytic Framework

Step 1: is the agreement within the statute?

Step 2: does the writing satisfy the requirements of the statute?

Step 3: if not sufficient, is the contract enforceable be cause of an exception?

Contracts Subject to the Statute of Frauds

MYLEGS

(1) Marriage Provision

(2) Over One-year provision

(3) Land Sale Contract

(4) Executor payment of estate’s debts

(5) Sale of Goods $500 or more

(6) Suretyship agreement

Statute of Frauds - Marriage Provision

covers promises to transfer property in return for either a promise to marry or the actual act of marrying someone

Statute of Frauds - Over One-Year Provision

Must be impossible to perform in under a year

Statute of Frauds - Land Sale Contract

(1) Sale of land or interest in land

(2) Leases of over one year

(3) Easements of over one year

(4) Minerals or structures if severed by the buyer

Statute of Frauds - Suretyship Agreement

Similar to a Guarantor on a loan

Exception: if the guarantor benefits as a result of the guarantee, then the agreement is not within the statute

Statute of Frauds - Executor Payments of Estate Debts

A species of suretyship contract where executory in position of surety

Statute of Frauds - Sale of Goods Over $500

Applies to contracts covered by the UCC

Statute of Frauds Writing Requirement R2d 132

(1) any writing

(2) signed by or on behalf of the party to be charged

(3) Which includes subject matter, essential terms, parties

Statute of Frauds Exceptions

(1) Promissory Estoppel

(2) Full Performance by Both Parties

(3) Full Performance by one party (over one-year provision)

(4) Part performance (land sale contracts)

Statute of Frauds Exception - Promissory Estoppel R2d 139

(1) a promise

(2) promisor should reasonably expect to induce reliance

(3) actually induced reliance

(4) injustice can be avoided only by enforcing the promise

Determining whether injustice can be avoided only by enforcement

(a) the availability and adequacy of other remedies, particularly cancellation and restitution

(b) the definite and substantial character of the action in relation to the remedy sought

(c) the extent to which the action evidence of the making and terms of the promise

(d) the reasonableness of the action

(e) the extent to which the action was foreseeable by the promisor

UCC Statute of Frauds - When the Statute Applies UCC 2-201(1)

A sale of goods $500 or more

Majority Rule: one year provision does not apply to UCC Contracts

UCC Statute of Frauds - writing requirement between merchants UCC 2-201(2)

(1) Between Merchants

(2) Within a reasonable time

(3) Sufficient against the sender

(4) the party receiving has reason to know its contents

(5) unless written notice of objection to its contents is given within 10 days after it is received

UCC Statute of Frauds Exceptions 2-201(3)

(1) specially manufactured goods

(2) if a party admits in court that a contract existed but only to the quantity admitted

(3) for goods which payment has been made and accepted

(4) justifiable reliance for a majority of jurisdictions

Economic Duress R2d 175(1)

If assent is (1) induced (2) by an improper threat and (3) leaves the victim no reasonable alternative, the contract is voidable

Economic Duress Sub Rule: Improper Threat R2d 176(1)

(1) crime or tort

(2) threatening criminal prosecution

(3) threatened use of the civil process and the threat is made in bad faith

(4) threat is a breach of the duty of good faith and fair dealing

Physical Duress R2d 174

If a party is physically compelled to assent, the contract is void

Third Party Duress R2d 175(2)

If a party’s manifestation of assent is induced by one that is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction (1) acted in good faith and did not know of the undue influence, and (2) gives value or relies materially on the transaction

Undue Influence R2d 177

(1) inducement

(2) unfair persuasion and/or undue susceptibility to domination

(3) inequitable result

Unfair Persuasion and/or undue susceptibility to domination by the other party

A sliding scale. A high degree of unfair persuasion may excuse minimal undue susceptibility and vice verse

Undue Susceptibility

(1) Weakness of mind or (2) relationship of trust

Inequitable Result Factors for Undue Influence

(1) Economic Consequences to the victim

(2) divergence from the victim’s prior intent or course of conduct or dealing

(3) relationship of the value conveyed to the value received

(4) the appropriateness of the change in light of the length and nature of the relationship

Kinds of Misrepresentation

(1) Affirmative Misrepresentation

(2) Concealment

(3) Nondisclosure

Fraudulent Misrepresentation R2d 164(1)

(1) False statement of Fact

(2) Intent (Fraudulent)

(3) inducement

(4) Justifiable Reliance

Negligent/Innocent Misrepresentation

(1) False Statement of Fact

(2) Intent (negligent/innocent)

(3) Material

(4) Inducement

(5) Justifiable Reliance

Misrepresentation - False Statement of Fact R2d 159

An assertion that is not in accord with the facts. Must occur at or before contract formation

Fraudulent Intent R2d 162(1)

Intended to induce a party to manifest his assent and:

(1) knows or believes the assertion is not in accord with the facts

(2) Does not have confidence that he states or implies the truth of the assertion

(3) knows he does not have the basis that he states or implies for the assertion

The misrepresented fact does not need to be material

Material Misrepresentation R2d 162(2)

(1) it would likely induce a reasonable person to manifest his assent, OR

(2) the maker knows that it would likely induce the recipient to manifest his assent

Nondisclosure

(1) The nondisclosed facts have a material effect on the transaction

(2) Are not readily observable

(3) Duty to Disclose

Duties to Disclose

(1) by statute

(2) where a party intentionally conceals the non-disclosed facts

(3) where the uninformed party is entitled to know the facts because of a relationship of trust

(4) to correct a mistake of the uninformed party when nondisclosure us a breach of good faith

(5) where disclosure is necessary to correct a previous assertion from being a misrepresentation

Unconscionability

(1) Procedural Unconscionability

(2) Substantive Unconscionability

Remedies of Unconscionability

Rescission, Severance, Reformation (rare)

Procedural Unconscionability

(1) Gross inequality of bargaining power

(2) Unfair Surpise

Gross inequality of bargaining power

(1) Poor, illiterate, unsophisticated party

(2) No real time or opportunity to read/understand/seek independent advice

(3) little or no leverage to negotiate

(4) Adhesion Contracts

Unfair Suprise

(1) Lack of knowledge of terms

(2) irregularities/overreaching/naughtiness in bargain process