Bar Prep- Contracts

When does common law rule over a contract?

When it is for the sale of land or services 

When does the UCC rule over a contract?

When it is for the sale of goods 

What is a contract?

an agreement between parties that can be enforced in court

What do you need to form a contract?

Mutual assent and consideration

What makes up mutual assent?

offer and acceptance

What is consideration?

Bargained-for exchange of something of legal value (both sides need consideration)

When are promises enforceable?

Only if they are part of a bargain in which something of legal value is exchanged for that promise (a legal detriment)

What is a legal detriment?

The party does or agrees to do something he was not obligated to do, or refrains from doing something he has the right to do 

Does consideration need monetary value?

No

What are Unilateral Contracts?

A promise in exchange for action, or where only one side is promising something. Consideration is satisfied through the action or forbearance 

Example: I’ll give you $1,000 if you promise to not name your child after me

What does not constitute consideration?

pre-existing duties and past consideration

What are pre existing duties?

something you are legally obligated to do. If no additional consideration is given by a party in exchange for the promise, then its not enforceable (think of the contractor who says he pay me an extra $20,000, the owner originally agrees but then doesn’t pay. Not enforceable because the owner isn’t getting anything in exchange for the promise)

What are past considerations?

Something that is done before the bargain is made can’t be used as consideration (if I give someone my car, it is not consideration for them to go since you gave me your car last week, I’ll paint your house)

What is promissory estoppel?

If a promise is made without consideration, but someone relies on that promise to their detriment, the detrimental reliance is a substitute for consideration (I promise to give the hospital $1,000,000 for new equipment, they rely on that and buy new equipment, I am on the hook for the $1,000,000 since they relied)

What is an offer?

Communication of willingness to enter into a contract that creates the power of acceptance in the party to whom the offer is being made 

What does an offer require?

1. intent to enter into a bargain 

2. definite terms

What is intent to enter into a bargain?

A reasonable person would believe that his assent would create an agreement, not just an invitation to deal or negotiate (I would consider vs I will see) 

What counts as definite terms?

Terms that are specific enough that a court could enforce a contract based on them 

What are definite terms that are required?

Identity of offeree, subject matter, and price

What if a definite term is missing?

If there is a standard for the court to apply to the missing term, then the contract is still enforceable. If not, then it is not enforceable

Identity of offeree

must be limited toward a certain person or class of people. If it is open to the general public with no limitation, then it isn’t definite enough. There must be a limit to the amount of people who can accept

What if there is no limit on the identity of the offeree?

If there is no limit or it’s open to the general public, then it will be classified as an invitation

What does a land sale contract need to identify?

the land and price term

what does a sale of good contract need to identify?

type and quantity of goods

What does an employment offer need to identify?

type of work to be done

How can an offer be terminated?

passage of time, death of either party, revocation by offeror, or rejection by offeree 

Passage of time 

If an offer doesn’t specify a length of time it’ll remain open, then it is a reasonable time considering the circumstances 

Revocation by offeror

termination of an offer done through the offeror saying “i revoke my offer”. If the offeror offers to keep the offer open for a certain period of time, there must be consideration on both sides for it to be truly irrevocable for that time period

Option contracts

A type of contract where there is a separate agreement binding the offeror to keep the offer open for a period of time. There must be consideration given for keeping the contract open

Merchant’s firm offer

Exception to option contracts, where if it is merchant selling goods and he agrees in a signed writing to hold the offer open for a length of time, it is irrevocable even without consideration 

Revocation through indirect communication

If the offeree has reliable information that the offeror has revoked the offer, then it is revoked (i offer to sell you my car, then you see someone else driving that car and they say that i sold you it)

rejection by offeree

done either by the offeree saying i reject (or something that gives that belief in the offeror) or by a counteroffer 

Acceptance

a manifestation of assent to the terms of the offer (communication indicating a desire to be bound by contract). Must be aware of the offer in order to accept it

Methods of Acceptance

Acceptance must be done how it is specified in the agreement, and are usually accepted in the same way the offer was made. Silence does not constitute acceptance even if it is said in the offer

UCC acceptance for sale of goods 

Can be done either through promise  to ship or through prompt shipment 

Nonconforming Goods

Under UCC, if the prompt shipment happens but it is nonconforming goods, then it is acceptance and they would be in breach

Exception to nonconforming goods as acceptance 

If seller sends the wrong goods along with a note saying “we’re out of the specific good here is a substitute as an accommodation”, then it is a counteroffer that can be rejected, not acceptance and a breach

What if the seller accepts the offer, then sends nonconforming goods with a notice?

Does NOT fit into the exception for nonconforming goods because the seller first accepted through promise to perform

Mirror Image Rule

Under common law, acceptance must be for the exact same terms as in the offer. If there are new terms given during acceptance, then it is a rejection and counteroffer 

Does UCC follow the mirror image rule?

Nope. UCC allows for acceptance that contains additional terms, unless it is made conditional expressly in the acceptance (ill buy your car IF you wash and vacuum it)

If new terms are added to a UCC offer, does the seller have to perform?

Yes if both parties are merchants. Otherwise no

Mailbox rule

Acceptance is effective the moment it is DEPOSITED in the mailbox. Rejections or terminations are effective when RECEIVED. (If i put a rejection in the mail, and before it is received I put an acceptance in the mail, then I have accepted and it is an enforceable contract

Integration of a contract

A contract that the parties both intend to be the final and complete version

Parol Evidence Rule

If there is a written contract that is integrated, written or oral statements made prior to the writing or oral statements made while writing aren’t admitted to the contract

Exceptions to parol evidence rule

evidence that affects validity of the agreement, evidence of when the contract becomes effective (basically evidence that shows that the agreement never came into being)

Rules of construction

1. contracts are construed as a whole

2. words are construed as their ordinary meaning

3. courts interpret contracts to make them enforceable and valid

4. ambiguities are interpreted against the party who made them 

Article 2 interpretation provisions

has codes for missing terms, delivery and risk of loss, warranties, implied warranties of merchantability, implied warranty of fitness, and breach

missing terms under UCC

Other than the quantity term (required), the UCC will supply missing terms

What if the price is missing under UCC?

The UCC says the price is a reasonable price at the time of delivery

What if the place for delivery is missing under UCC?

UCC says that it is the seller’s place of business, or his home if he doesn’t have a place of business 

What if time of shipment is missing under UCC?

Shipment is due in a reasonable time

risk of loss during delivery

risk of loss depends on the delivery terms and if the seller is a merchant. If the seller is a merchant and the method of delivery is not by a carrier, risk of loss passes to the buyer when the buyer takes possession. If the seller is not a merchant, risk of loss passes to the buyer when the goods are ready for pickup. If delivery is by a common carrier, then the buyer has risk of loss at the time the carrier receives the goods (but they can usually recover from the carrier) 

warranties

Sale of goods contracts automatically contain certain warranties, and a warranty is a guarantee made by the seller making a statement of fact that the buyer relies on when entering into the contract

Warranty of title 

automatic warranty in UCC contracts that the seller is conveying good title and that the transfer is rightful 

Implied warranty of merchantability

 automatic implied warranty in UCC contracts that the good are fit for the ordinary purpose for which they are used

implied warranty of fitness for a particular purpose

automatic implied warranty where the seller says the goods are fit for a particular purpose if:
1. the seller has reason to know of the particular purpose for which the goods are going to be used and the buyer relies on that judgement in selecting the goods and 2. the buyer relies on the seller skills 

Breach of warranty

breach of warranty is a breach of contract and damages are calculated by finding the difference in the value of the goods accepted and the value of goods promised

Reasons a contract might not be enforced 

Doesn’t follow statute of frauds and it needs to, mistake, misrepresentation, lack of capacity, Unconscionability 

Statute of Frauds

contracts that have to be evidenced by writing. Evidence can’t be admitted to add a missing term (it would be unenforceable) 

What contracts fall under the SOF

promises creating an interest in land, promises where the terms can’t be performed within one year, contracts for the sale of goods over $500

types of mistakes

mutual mistake, unilateral mistake, misunderstanding

Mutual mistake

If both parties are mistaken, the contract would be voidable if it concerns a basic assumption of the contract, has a material effect, and if the party seeking to avoid the contract did not assume the risk of mistake

Unilateral mistake

If one party makes a mistake and the non-mistaken party knew or had reason to know of the mistake, then the mistaken party can avoid the contract

Misunderstanding (defenses)

If there is a contract with two possible meanings and neither party is aware, it will only be enforceable if both parties intend the same meaning. If both parties are aware of the ambiguity, the contract will only be enforceable if both parties intend the same meaning. If one party knows of the ambiguity, the contract is enforceable according to the meaning of the party who was unaware

Misrepresentation (defenses)

1. If misrepresentation was accidental, innocent party may void contract if the misrepresentation was material 

2. If misrepresentation was intentional, only a justifiable reliance is necessary to void the contract 

Lack of capacity (defenses)

If it is a minor, they lack the capacity but it would be binding on the adult (the adult can’t use it as a defense against performing the contract). Also duress or overpowering the free will of a party by excessive pressure

Unconscionability (defenses)

when a contract has unfair terms that are unfair from the start, like inconspicuous or incomprehensible terms, a court may refuse to enforce it

When can a duty be discharged or excused without performance?

1. express condition did/didn’t occur

2. waiver of condition

3. other party’s breach

4. insecurity about other party’s performance

5. changed circumstances (impossibility, impracticability, frustration)

6. subsequent agreement

Express condition did/didn’t occur

If an event occurs that triggers performance doesn’t happen, you don’t have to perform. Or if it says if this happens you don’t have to perform

waiver of condition

If there is a condition, the one who has the benefit of the condition can indicate that they will not insist on the condition being met

Other party’s breach

if one party breaches, the other party is excused. Must be material (anticipatory repudiation) for common law

Anticipatory repudiation

If before the time to perform one party clearly indicates they won’t perform

Insecurity about other party’s performance

If party words or actions give reasonable grounds for insecurity, party can depamnd adequate assurance and suspend performance until he gets it. If not provided, performance is excused

Impossibility

Things like death or incapacity of a person necessary to carry out the contract, subject of contract becomes illegal, or subject of contract is destroyed

Impracticability

party has encountered extreme and unreasonable difficulty or expense in perfmance (material shortage or difficulty due to war, embargoes, catastrophic crop failure, shutdown of supplier). Mere increase of price is rarely sufficient

Frustration

if the purpose of the contract was known to both parties and becomes valueless due to an unforeseen circumstance, the duty may be discharged

Subsequent agreement

recession, accord and satisfaction, modification, novation

Recession

when the contract is not fully performed, both parties can discharge by having an agreement to rescind (call off) contract

accord and satisfaction

a new contract to an existing contract that changes the performance of the contract. Needs consideration Satisfaction is the performance of the accord

Modification

The changing of terms in a contract discharges those terms in the original contract, not the entire contract. Needs mutual assent and consideration for common law

Novation

two og parties entering into a new contract that changes one of the parties. same performance, different party

What if a party fails to perform?

they breach the contract

common law breach

has their been substantial performance?

Common Law: minor breach

the promisee (receiving performance) receives substantial benefit of what was bargained for. Pay for the work done

Common Law: material breach

causes the contract to immediately end and you can sue

common law breach factors

1. non-breaching party can be compensated with money

2. amount of benefit the non-breaching party received

3. extent of performance

4. hardship of the breaching party

5. if breach was willful or negligent

6. likelihood breaching party will fully perform

7. time is only material if it is important to the contract (has to be performed at/by a specific time)

UCC breach

determined by if there has been perfect tinder or not

Perfect tinder rule

Goods and delivery that conform perfectly to the contract in every aspect

If no perfect tender:

1. reject all nonconforming goods and cancel contract and sue

2. accept goods and sue for damages

3. accept commercial units of goods, reject the rest, and sue for damages

Exceptions to the perfect tender rule

acceptance, right to cure, installment contracts

Acceptance of goods

1. after a reasonable opportunity to inspect goods, buyer indicates that they conform

2. buyer fails to reject (take goods without saying anything)

3. buyer does something that indicates they are no longer the sellers (using the goods)

exception to acceptance of goods

if accepted due to difficulty of discovering defects or because of assurance that the goods conform, buyer can revoke acceptance if they don’t conform

right to cure

if there is time left to perform the contract, the seller can make it right by sending conforming goods

exception to the right to cure

when a seller sends non-conforming goods that they reasonably believe would be accepted but aren’t, the seller upon reasonable notification to the buyer has reasonable time beyond the original contract to perform

nonconforming goods in installment contracts

if an installment substantially impairs the value of the installment and can’t be cured. It’ll be a breach of the whole contract only if the nonconformity substantially impairs the value of the entire contract

remedies for breach

make the non-breaching party in the position he would have been in if there had been no breach

types of remedies

compensatory damages, reliance damages, liquidated damages, partial recovery with deductions, lost volume, mitigation, specific performance, cancellation, restitution, rescission and reformation

compensatory damages

aka monetary damages including incidental damages and consequential damages that you know might result of your breach

compensatory damages in warranty cases

in contracts with warranties that guarantee the goods will have certain qualities, the compensatory damages don’t have to be all or nothing. you can keep defective goods and get damages for the difference in price.

reliance damages

if damages are too speculative, the court may grant reliance damages, the cost incurred based on reliance of the contract