L201 Contracts

What is a contract?

a legally enforceable set of promises that can be written, verbal, or implied with exceptions

What are the elements of a contract?

1) offer & acceptance
2) supported by consideration
3) knowingly and voluntarily entered into
4) by parties with capacity to contract
5) to do legal acts

What is a unilateral contract?

one party has made a promise

What is a bilateral contract?

both parties have made a promise

What is an express contract?

when the party directly states terms when a contract is formed

What is an implied contract?

when an agreement has been reach but not expressly states term

sources of law - What is UCC?

Uniform Commercial Code

sources of law - What does UCC include?

• sale of goods

• security agreements

• negotiable instruments (checks, notes, etc.)

sources of law - What does common law include?

• real estate

• services

• settlement agreements

sources of law - What is a hybrid contract?

when the contract involves sale of goods and non-goods

sources of law - How do you determine whether to use UCC or CL for hybrid contract?

you have to do the predominant purpose test

sources of law - What must you consider with the predominant purpose test?

• Motivation for the contract

• What kind of consideration

• Whether the agreement focuses on goods or services

sources of law - What makes UCC more flexible than CL?

1. default terms for contracts

2. good faith and fair dealing

3. buyer can inspect and reject goods at delivery

4. buyer can only reject if reasonable

5. contract modifications don’t need new consideration

sources of law - What formal requirement applies to UCC contracts for goods?

Sales of goods over 500 need a signed record/written agreement

sources of law - What is a UCC merchant?

someone who:

• regularly deals with certain goods being sold

• has special knowledge about them

What is implied warranty?

If a seller is a merchant, the law automatically applies a warranty

What are the elements of the warranty?

Good must be:

• normal quality

• fit for ordinary use

• not defective

• what a reasonable buyer would expect

How can a merchant remove warranty?

using clear and certain language, like “as is” and “with all faults”

What is a valid contract?

satisfies all elements and is legally binding

What is an unenforceable contract?

satisfies all elements, but another rule blocks its enforcement

What is a voidable contract?

when a contract may be cancelled by 1 or both parties

What is a void contract?

cannot be enforced by any contracting

offer - What is an offer?

party:

• shows present intent

• has definite terms, and

• communicates to other party

offer - What are the elements of an offer?

• present intent

• definiteness

• communication

offer - What is the duration of an offer?

• offer terms — stated in the offer

• no terms — reasonable time based on circumstances

offer - What is an offer revocation?

the offeror can revoke at any time if the offeree receives the revocation before the offeree accepts

offer - What are the 4 exceptions to an offer revocation?

1. UCC firm offers

2. option contracts

3. promissory estoppel

4. unilateral contract where performance has begun

offer - What is UCC firm offers?

merchant must keep open if there’s a written promise to keep it open; 3 month cap

offer - What is an option contract?

separate contract from original that offers a consideration

offer - What is a promissory estoppel?

• offeror makes promise that offeree could reasonably rely on

• offeree actually relies on it

• offeree will suffer significant loss if offeror is allowed to revoke

offer - What is unilateral where performance has begun?

once offeree begins performance, offeror must pay portion of work that is done if revoked

offer - What is an offer rejection?

When offeree rejects, offer is no longer open and is effective when received

offer - What is a counteroffer?

A rejection and new offer

offer - What is external termination?

when death, insanity of parties, or desrcution of subject matter occurs

offer - What are advertisements?

• typically not an offer

• becomes offer — detailed enough that appears that one must accept

acceptance & rejection - What are the different types of internet agreements?

• clickwrap

• browsewrap

acceptance & rejection - What is a clickwrap agreement?

manifest agreement by clicking to enter a side (includes prompt and includes clicking “I agree”)

acceptance & rejection - What is a browsewrap agreement?

manifest agreement by receving notice of terms and conditions and continuing to use site (no prompt to click I agree)

acceptance & rejection - What is a contract acceptance?

offeree clearly shows that they agree to the exact terms of the offer in a way the offeror allows.

acceptance & rejection - What 3 things must be true in order for a contract to be validly accepted?

• present intent to contract

• must match terms in the offer

• communicated acceptance to offeror

acceptance & rejection - How do you match terms in the offer under common law?

using the mirror image rule

• acceptance of all the material terms

• different terms create a counteroffer (which is essentially a rejection to the original offer)

acceptance & rejection - How do you match terms in the offer under UCC?

using battle of the forms

• solves misaligned purchasing forms

• conduct can show acceptance

acceptance & rejection - What are the 5 questions to ask with Battle of the Forms

1. Is there an offer and acceptance OR did the parties act like there’s a deal?

2. What terms match? Keep those.

3. What terms conflict? Knock them out and use UCC default rules.

4. Are they merchants? If yes, extra terms might join unless they’re big changes.

5. Not merchants? Extra terms don’t join at all.

acceptance & rejection - What are 2 ways to communicate acceptance?

• specific means

• no express method — UCC or CL

acceptance & rejection - What if acceptance requires specific means?

You must accept it in the way that the offeror is asking you to

acceptance & rejection - What is the acceptance under UCC?

any reasonable method works

acceptance & rejection - What is the acceptance under CL?

mailbox rule - acceptance is counted as soon as the acceptance is sent

What is consideration?

something of

• legal value

• that is bargained for, and

• given in exchange for an act or promise

legal value - What is positive?

Agreeing to do something new that the law did not already require you to do

legal value - What is negative consideration?

agreeing to not do something that there is the legal right to do

What is considered valid consideration?

Any real bargained for exchange, even if the value is small

When will consideration fail?

When it’s a gift or a party lacks capacity

What does “bargained-for-exchange” mean?

something consideration requires, which is when each side gives something in return for the other’s promise or performance

What is the rule for an obligation that already exists?

A promise to do, or doing, an act that someone is already obligated to do is not consideration

What is a modification?

when the parties change an existing contract after it has already been formed

What is the CL rule for modification?

Requires new consideration for every modification (both sides must give something new)

What is the UCC rule for modification?

no new consideration, but writing rules may apply

What are the writing rules for the UCC rule for modification?

• writing contract required over $500

• written modification clause (if

What is settlement of debts?

An agreement to accept payment and resolve a debt, treated as a contract that requires consideration

What is a liquidated debt?

• amount is undisputed and known

• everyone agrees on the number

What is the rule for a liquidated debt?

paying less than what you owe is NOT considerations?

What is the exception to the rule for liquidated debts?

• paid earlier than required

• using different form of payment

• composition agreement — when you have multiple creditors to pay back and they all agree to accept less than what you owe them

what is an unliquidated debt?

a disputed debt that may be settled through accord and satisfaction, creating a binding contract.

what are conditional contract terms?

terms that make a party’s duty to perform depend on whether a specific event occurs.

what is a condition precedent?

an event that must occur before a party’s duty to perform arises.

Example: “I will buy your house if my loan is approved.”

what is a condition subsequent?

an event that ends a party’s existing duty to perform.

Example: “This contract exists unless the company loses its biggest client.”

what are concurrent conditions?

conditions where each party’s duty to perform depends on the other party performing at the same time.

Example: “I will give you the keys when you give me the money.”

contract discharge - what is a mutual agreement?

when both parties agree to end the contract

contract discharge - what is a waiver?

when a party gives up a contractual right by accepting partial performance without objection

contract discharge - what is an intentional altercation?

discharges the non altering party of the contract unless they consent or fail to object after learning of the change

contract discharge - what is a statute of limitations?

discharges a contract claim if a lawsuit is not filed within the required time period.

what is a remedy?

what courts use to fix harm caused by a breach of contract

what are compensatory damages?

compensation that is meant to put the injured party in the same position they would have been if the contract had been performed

what are consequential damages?

losses caused by a breach that were known to the breaching party at the time of contracting

what are liquidated damages?

specific amount written into the contract that is agreed upon amount to be paid if contract is breached

what are the conditions of liquidated damages

• the amount must be reasonable

• at time of contracting, damages must be inestimable

what does duty to mitigate mean?

the injured party must take reasonable steps to reduce their losses

Example: if a tenant leaves early, it’s the landlord’s responsibility to find someone new to fill the lease asap

what is strict performance?

the party completed must complete the contract exactly as the contract terms are written

what is substantial performance?

the party completed all the material terms, but deviated in terms of minor, nonessential tasks

what is time in contract performance?

• if time is not an important factor, lateness to complete a contract is not a big deal

• if time is specified as “time is of the essence” and the other party does not complete the service in a timely manner, this is considered a breach

what is a personal satisfaction clause?

a party can reject the service if it’s not to their liking, whether it is reasonable or not (only if contract specifies that the job must be done to personal satisfaction of the one that’s paying to get job done)

what is an architect certificate?

engineer or architect must approve work done by contractor; waived if they unreasonably refuse or are ill/dead

what is a material breach of contract?

• breaching party has no right and is liable for any damages arising from breach

• exception: if they partially completed, the breaching party gets compensated for the work they did

what is an anticipatory breach?

• when the breaching party either expressly or implies that they will not fulfill the contract

• does not need to wait for the breach to happen; can sue now

how would a party be excused from liability?

1. prevention - other party prevented party from performing

2. impossibility - when performance becomes objectively impossible

3. illegality - performance would require breaking the law

4. commercial impracticality - an unforeseeable event makes performance extremely burdensome

5. commercial frustration - performance can happen, but purpose for contract is destroyed

what are equitable remedies?

what courts use when money isn’t enough for the affected party to be compensated for damage

what is a specific performance as an equitable remedy?

a court order forcing a party to do exactly what the contract promised (when what is promised is unique — labor does NOT count)

what is injunction as an equitable remedy?

a court order telling a party to do or stop doing something — only qualifies if the lack of order would lead to irreparable harm

what happens legally when a contract is void?

the law treats it like the contract never existed

what is a common reason a contract is void?

illegality or violation of public policy

who has the power to cancel a voidable contract?

the party who’s consent was flawed

what are common reasons a contract is voidable?

fraud, misrep, mistake, etc.

what are the elements for a voidable contract if misrepresentation occurred?

1. false declaration of a fact (intentional, reckless, or innocent)

2. the false fact is material

3. the other party justifiably relied on

4. it is the other party’s detriment by agreeing to the contract

what are the elements for a voidable contract if fraud occurred?

1. misrepresentation

2. knowledge (intentional/reckless)

3. intent to deceive

what are the 2 remedies if fraud occurs?

1. rescission of contract

2. keep contract & sue for damages

what are the elements for a voidable contract if a mistake occurred?

1. enter contract

2. with false belief

3. about material fact underlying the contract

what is a mutual mistake?

no “as is” clause or assumed risk - either party can rescind offer

what is a unilateral mistake?

material fact, no assumed risk, and either:

• other party knew or should have known

• unconscionability — enforcing the contract would create a crazy unfair result

what is “statute of frauds”? (CL)

some contracts are only enforceable if in writing

what are the 4 scenarios that REQUIRE a written contract?

1. if an executor promises to pay the debts of someone who died

2. if you promise to pay someone else’s debt if they don’t

3. contracts for the sale or transfer of land

4. contracts that cannot be completed within one year