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What are six characteristics of a contract?
Offer
Acceptance
Consideration
Legality
Capacity
Consent
Define Offer
Someone proposes a deal (in certain way)
Define Acceptance
To accept, the party must respond in a certain way
Define Consideration
There must be an exchange between them. Something given for something received.
Define Legality
The contract must be for a lawful purpose
What does consent prevent?
Certain kinds of trickery and force can prevent the formation of a contract
Define Bilateral contract
A promise made in exchange for another promise
Define Unilateral contract
One party makes a promise that the other party can accept only by actually doing something
Define Executory contract
An agreement in which one or more parties has not yet fulfilled its obligations
Define Executed contract
An agreement in which all parties have fulfilled their obligation (aka completed contract)
What is a valid contract?
A contract that satisfies all of the law’s requirements
What is an unenforceable agreement?
An agreement that occurs when the parties intend to form a valid bargain, but do not. The agreement is missing legality, capacity, consent, and/or writting
Define Voidable contract
An agreement that may be terminated by one of the parties
What is a void agreement?
A contract that neither party can enforce, because the bargain is illegal or one of the parties had no legal authority to enter into it
Define express contract
An agreement with all the important terms explicitly stated
Define implied contract
The words and conduct of the parties indicate that they intended an agreement
What is Promissory Estoppel?
A party had “detrimental reliance” on a promise making it enforceable by law.
What are the elements of promissory estoppel?
A promise was made
It was a reasonable expectation of the promisor to induce action or forbearance on the part of the promisee
The promisee reasonably relied on the promise and took action to their detriment.
Such promise is binding injustice can only be avoided by enforcement of the promise.
Define Quasi-contract
Avoids “unjust enrichment” by creating contract where none existed but one party got a benefit they should not be allowed to keep.
What does Uniform Commercial Code (UCC) govern?
Aspects of commercial transactions:
Regarding contracts, the most important part of the UCC governs goods and secured transactions
How do courts determine the type of contract in mixed contracts?
For a mixed contract (goods and services), courts must determine the primary purpose of the contract and apply either common law (services) or UCC (goods) to the entire contract
How is a offer determined under UCC contract?
Must have a “meeting of the minds”
Offer proposes definite terms and acceptance unconditionally agrees to them
Courts objectively assess based on actual words and conducts rather than on determining what parties meant to say (or do) or thought they said (or did)
What two key questions are asked to see if a statement is actually an offer?
Do the offeror’s words and actions indicate an intention to make a bargain, and
Are the terms of the offer reasonably definite?
Is an invitation to Bargain an offer?
No
How are advertisements considered?
Generally they are not seen as an offer, but a request for offers. Consumers make the offer by indicating intent to buy. Sellers are free to reject the offer. May be an offer, though, if the advertisement is very explicit. Will depend on the exact language.
How are price lists considered?
Generally seen as solicitation of offers to buy the recipient
How are auctions considered?
Placing items up for auction is a request for an offer
What is the Uniform Commercial Code (UCC)?
This is a body of law developed to help govern commercial business transactions. Includes bank deposits and investment securities as well as goods. Usually applies to contracts where at least one party is a merchant or holds themselves out to have the same knowledge as a merchant for those goods.
Does a UCC contract have to include quantity?
Yes - it must include quantity even if other things are missing unless filled in with Gap-fillers.
What is a gap-filler provisions?
The UCC rules for supplying missing terms
What are the types of gap-fillers?
Open Price
Requirements contract
Output contract
What does open price mean?
Where price can be determined by market information
What does Requirements contract means?
Contract in which a buyer agrees to purchase all of their goods from one seller
What is an output contract?
Contract in which the seller guarantees to sell all of its output to one buyer, and the buyer agrees to accept the entire quantity
Do additional terms become part of the contract under UCC law?
Under the UCC, an offeree who accepts may include, in the acceptance, terms that are additional to or different from those in the offer. Additional terms become part of the contract unless are directly in conflict with the contract; different terms cancel out what was in the contract regarding those same terms.
What are the four ways an offer can be terminated?
By revocation
By Rejection by offeree
By expiration
By operations of law
What does revocation mean?
The offer is taken back before it’s accepted. Cannot then be accepted.
What does rejection by offeree mean?
Immediately terminates offer. Can’t then be accepted if reconsider.
What does expiration mean?
Where time limit is set. If not time limit, a “reasonable time” is used to accept
What does operation of law mean?
Offeror dies or becomes incapacitated or where there is destruction of subject matter of the offer.
What is the Mirror Image Rule?
Under Common Law, acceptance must be on precisely the same terms as the offer. Additional or contradictory terms are both a rejection of the offer and a counteroffer.
Does the mirror image rule apply under UCC law?
Under UCC - Still must have an intent to accept; however, may be able to add additional terms or have different terms and still have a valid contract. Additional terms - will generally become part of the contract. Different terms - those that contradict terms of the offer generally cancel each other out and are replaced with UCC gap-filler terms, if applicable.
What happens to different terms under UCC law?
Different terms that contradict terms of the offer generally cancel each other out and are replaced with gap filler terms, if applicable.
What is a clickwrap agreement?
Online acceptance of terms through “I Agree” buttons. Generally enforceable unless the terms are not easily seen
What should be considered when determining the communication of acceptance?
Method- if it is in person, by mail, by phone, by email, by fax, etc..
Manner - by promising, by making a down payment, by performing
Acceptance generally effective when out of offeree’s control. E.g. placed in mailbox - mailbox rule.
Terminations of offers are effective when received by offeree.
What is consideration?
Consideration is the inducement, price or promise that causes a person to enter into a contract and forms the basis of the parties’ exchange.
What are the two basic elements of consideration?
Value
Bargained-for Exchange
What does it mean for consideration to have value?
Requires legal benefit to promisor or detriment to the promisee.
Must get something of measurable value, but courts will not determine whether the consideration is enough for the bargain to be formed.
Can be either an act, a forbearance or a promise to do either of these.
Act - party does something not legally required to do in the first place. Not considered an act if party was simply complying with the law of fulfilling an existing obligation.
Forbearance - party agrees NOT to do something that he had a legal right to do.
What does it mean bargain for exchange mean?
Involves reciprocity. Parties must have bargained for whatever the exchange was.
What is not considered consideration?
Illusory promises
Pre-existing duties
Past considerations
Define Illusory promises
Promise must be clear. Must actually commit the promisor.
Define pre-existing duties
Providing services that someone is already obligated to provide does not count as consideration.
Define past consideration
A completed act cannot generally be the basis for consideration
What happens when additional work is done in a contract?
When a party agrees to do something above and beyond what he is obligated to do, his promise is generally valid consideration.
What happens when modification is done to a contract?
Additional consideration is necessary for a modification of contract terms because it is unfair for one party to get something more while the other does not under Common Law. No consideration required for modification under UCC contract.
What is liquidated debts?
Where there is no dispute about the amount owed
What is an unliquidated debts?
Where either (1) the parties dispute whether any money is owed or (2) the parties agree that some money is owed but there is a dispute about how much is owed. Parties may settle for less and have that be binding
What happens when a creditor takes less than the full amount as full payment in liquidated debts?
If a creditor agrees to take less than the full amount as full payment, the agreement is not binding because the debtor has given no consideration to support the creditor’s promise to pay a reduced amount, unless creditor enters into separate agreement for the that reduced amount and there is consideration.
What is the exception for liquidated debts?
If the debtor offers a different performance to settle the liquidated debt, and the creditor agrees to take it as full settlement, the agreement is binding.
What happens when a check is cashed during an unliquidated debt case?
In the instance of unliquidated debt, you can have an Accord and Satisfaction. “Full Satisfaction” or similar language on the check that is cashed by creditor settles the debt. Creditor can’t cash it and then state that is was only for partial payment.
What are the two groups of illegal agreements that are void?
Those that violate statutes
Those that violate public policy
Does a non-compete agreement have to be part of a larger agreement?
Yes
What are the requirements for non-compete agreements for employment?
Varies by state, but most of them hold them enforceable if":
Reasonably necessary for protection of employer (reasonable scope)
Provide reasonable time limit
Have reasonable geographic limit
What are the requirements for non-compete agreements in the sale of a business?
Enforceable if reasonable in time, geographic area and scope of activity
What are exculpatory clauses?
Attempt to release a party from liability in the event of injury to another party
When are exculpatory clauses unenforceable?
Generally unenforceable when attempting to exclude intentional tort or gross negligence or when the affected activity is in the public interest, such as medical care, public transportation or some essential services
Also generally unenforceable when parties have greatly unequal bargaining power
Must be clearly written and visible to be enforceable
What is capacity?
Legal ability to enter into a contract
What falls under the capacity category?
Minors
Mentally Impaired
Intoxication
What is restitution? (Minor Case)
A minor who disaffirms a contract must return the consideration he has received to the extent he is able.
What is the timing of disaffirmance/ratification? (Minor Case)
A minor may disaffirm a contract before or within a reasonable time upon reaching age of majority
What is ratification? (minor case)
Words or actions indicating an intention to be bound by a contract
What is necessaries? (minor case)
On a contract for necessaries, a minor must pay for the value of the benefit received
What is misrepresentation of age? (minor case)
A minor who lies about his age at the time of the transaction may not be allowed to disaffirm; state law varies.
If a mentally impaired person enters into a contract, is the contract voidable?
Yes - creates a voidable contract unless the person has been adjudicated incompetent. Then all future agreements are void
To what extent does intoxication create a voidable contract?
Can’t be intoxicated to the extent that party can’t understand the nature and consequences of the transaction. Creates a voidable contract.
What is consent?
Refers to whether a contracting party truly understood the terms of the contract, and whether she made the agreement voluntarily
What are the challenges to consent?
Fraud
Mistake
Duress
Undue Influence
Fraud
Defendant knew statement was false, or made statement recklessly and without knowledge of whether false
False statement was material
Injured party was justifiable in relying on the statements
If a seller knows a material fact that would affect the buyer’s decision, the seller may have an affirmative legal duty to disclose it.
What is mistake?
Generally parties are left to their own, unless one party will profit unreasonably from another’s error.
What is unilateral mistake?
Can be voided by party who did not know of the mistake when agreement made.
How is a unilateral mistake rescinded?
To rescind for unilateral mistake, the mistaken party must show his mistake, and must show:
The other party know or had reason to know of the error
The mistake is mathematical or mechanical alone
Enforcing the contract would be unconscionable
What is mutual mistake?
Occurs when both contracting parties share the same mistake
What happens if a contract is based on a fundamental factual error by both parties?
The contract is voidable by either party BUT not if it’s a mutual mistake about the value of an item or if a party is taking on a risk (“conscious uncertainty”)
What is Duress?
Party threatens other party to cause them to enter into contract. Creates voidable contract. Can be physical or economic duress.
What is Undue Influence
Injured party just demonstrates:
Relationship between parties of either trust or domination, and
Improper persuasion by the stronger party
What contracts must be in writing
Contracts made in consideration of marriage
Contracts that cannot be performed within one year
Contracts for the transfer of an interest in land
Contracts made by an executor of an estate to pay a debt of the estate
Contracts for the sale of goods of $500 or more (UCC)
Contracts in which a party agrees to pay the debt of another (“surety”)
Who must sign a written contract?
Defendant
What must the written contract state?
Must state, with reasonable certainty, the name of each party, the subject matter of the agreement and the essential terms and promises.
What are the exceptions for written contracts?
Contracts that should be in writing under the standards but are not may still be enforceable when there has been partial performance
Where there has been full performance, it no longer matters whether it was in writing or not
For an interest in land, if the buyer either makes a valuable improvement on the land or takes possession of the property and pays part of the purchase price, the contract will be enforceable
Under UCC what are three important elements?
The Basic Rule
The Merchant’s Exception
Parol Evidence
What is the basic rule?
A contract for the sale of goods of $500 or more is not enforceable unless there is some writing, signed by the defendant, indicating that the parties reached an agreement
What is the Merchant’s Exception?
Within a reasonable time of making an oral contract, if a merchant sends a definite, written confirmation to another merchant, then the merchant who receives the confirmation will be bound by it unless he objects in writing within 10 days.
What are the special circumstances for the Merchant’s Exception?
An Oral contract may be enforceable without a writing if:
The seller specially manufactured the goods for the buyer, or
The defendant admits in court proceedings that there was a contract or
The goods have been delivered or
The goods have been paid for
What is Patrol evidence?
Refers to anything (apart from the writting contract itself)that was said, done or written before the parties signed the agreement or as they signed it.
What is the patrol evidence rule?
When two parties make an integrated contract, neither one may use parol evidence to contradict, vary, or add to its terms.
What is an integrated contract?
A writing that the parties intend as the final, complete expression of their agreement.
What is the exception to the Parol evidence rule?
An incomplete or ambiguous contract
If a court determines that a written contract is incomplete or ambiguous, it will permit parol evidence.
How can a contract be terminated or ended?
Full performance
Mutual Agreement to Rescind
Conditions in a contract never happened
Conditions can be express or implied
Conditions precedent - must occur before any duty arises
Condition subsequent - must occur after a particular duty arises
What is the most common ending/termination of a contract?
Full performance of the contract
What is strict performance?
Not usually required unless parties agreed to that in contract and that standard is reasonable. Otherwise, minor defects won’t terminate contract
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