L201 Lopez IU Exam 3

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Basic elements of a contract

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Basic elements of a contract

Offer

Acceptance

Voluntary

Consideration

Capacity

Legal

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Contract

a legally enforceable promise or set of promises

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Is every promise legally enforceable?

No

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Elements of a Contract

(1) agreement made of an offer and an acceptance (2) made voluntarily

(3) supported by consideration

(4) between parties with capacity to contract

(5) made for a lawful purpose

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Oral v. Written

Unless the law specifically requires a certain type of contract to be in writing, an oral contract that can be proven is as legally enforceable as a written one.

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Who usually has the power of the contract?

the drafter

-standardized form- terms are non-negogitable

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Unilateral

One party makes a promise

ex) dunkin donuts reward system

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BILATERAL CONTRACT

Both parties exchange promises

-Contract is formed when the promises are exchanged

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Unenforceable - otherwise valid, but

-Not in writing (some Ks must be in writing)

-Voidable (one party has legal right to cancel)

-Void (no legal obligations created)

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Valid contract

a contract that meets all the legal requirements for a binding and enforceable agreement

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Voidable contract

agreement otherwise binding, but due to circumstances surrounding execution or lack of capacity, may be rejected at option of one party

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Void contract

agreement without legal effect because prohibited by law

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Express contract

agreement of parties manifested by words, written or oral

-have directly stated the terms of their contract

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Implied contract

agreement not shown by words, but by acts and conducts of parties

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Executory contracts

Not yet performed

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executed contracts

when all parties have fully performed their contractual duties

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Quasi-contract

an obligation imposed by law to prevent unjust enrichment of one party in certain circumstances

ex) work performed by painter thinking work justified by contract & other party, who receives benefit of work, denies work was justified

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Quasi-contract remedies

Plaintiff recovers either:

-the reasonable value of the benefit conferred on the defendant (reasonable price)

-value of labor (quantum meruit)

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quantum meruit

value of labor

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The two governing bodies of contracts:

-Common law

-UCC

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Article 2 expressly applies to

contracts for the sale of goods

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Two primary sources of Contract Law

1. Common Law

2. Uniform Commercial Code

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"Goods"

tangible, movable, personal property

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Who has not adopted the UCC?

Louisiana

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What is the UCC?

Establishes a uniform set of rules to govern commercial transactions across state lines

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Hybrid contract

contracts that involve both goods and services

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Test for hybrid contracts

predominate factor test- if the good or service is more expensive

ex) tires: you are paying for the good so UCC

Jiffy Lube: you are paying for the service so Common Law

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doctrine of promissory estoppel

when one party relies upon another party's promise to his or her detriment (detrimental reliance), but there's no contract

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The elements of Promissory Estoppel claim are

•(1) a promise clear and unambiguous in its terms;

•(2) Reliance by the party to whom the promise is made;

•(3) reliance must be both reasonable and foreseeable;

•(4) the party asserting the estoppel must be injured by the reliance.

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Offer

a promise conditional on an act, return promise, or forbearance

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Requirements for an Offer

1. a "present intent to contract"

2. Specificity or definiteness in the terms

3. the offer has been communicated to the offeree.

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Offeror

The person making the offer

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Offeree

person who the offer is made to

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Intent

An offeror must indicate present intent to contract, or the intent to meet the contract obligation upon acceptance

-Would a reasonable person judge the offeror's words and acts in the context of the circumstances to signify intent?

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Definiteness is important because:

1. shows the willingness/intent to contract

2. the court needs to calculate the remedy for breach of contract

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presumption (4 parts)

A price, quantity, delivery, and time for payment term left open in a contract

-definiteness under UCC

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UCC has "gap-filling" rules

allowing courts to fill-in contract terms on price, quantity, delivery, and time for payment

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Definiteness under Common Law

-requires a high level of definiteness and requires the time, delivery, price and quantity to be stated

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Advertisements for a sale of goods at specified prices generally are

not considered offers, but are invitations to offer or negotiate

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Advertisements offering rewards for lost property, information, or capture of criminals are treated as

as offers for unilateral contracts

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Auctions and Bids

usually invitation to offer

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Reserve during an auction

a minimum price that the seller is willing to accept for an item

-the seller is obligated to sell the item once a bid meets or exceeds the reserver

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Revocation

Offeror can revoke anytime prior to acceptance, even if they have promised to hold the offer open for a stated period of time.

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Exceptions to Revocations

1. Option contract in which an offeror agrees not to revoke the offer for a stated time in exchange for some valuable consideration

2. Offers for unilateral contracts (e.g., rewards)

3. Promissory estoppel circumstances (reliance on the offer staying open)

4.Firm offers for sale of goods

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Revocations are effective upon

receipt

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Requirements for a firm offer

1.Offer made by a merchant

2.Offer is in writing

3.Offer is signed

4.Offer gives assurances that it will be kept open

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Contract terminated if

1. Lapse of time

2. rejection

3. death or insanity

4. destruction

5. intervening illegality

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Article 2A

lease of goods

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A firm offer does NOT need consideration under the UCC, but does need:

1.To be made by an offeror who is a merchant

2.To be contained in a signed writing

3.Give assurances that the offer will be kept open

If no time is stated then the firm offer revocability is three months (90 days)!

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acceptance requirements:

1.The offeree intended to enter the contract

2.The offeree accepted on the terms proposed by the offeror

3.The offeree communicated his acceptance to the offeror

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"Mirror Image" Rule

Common law Traditional Mirror Image Rule-Acceptance must be the mirror image of the offer

Modern law:

Only "material" - "IMPORTANT" - variances between an offer and a purported acceptance result in an implied rejection of the offer

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Are inquires and grumbling acceptances real acceptances?

yes

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Battle of the forms

when two merchants make forms that don't agree

-except: price must agree

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Knock-out rule (under battle of forms)

you take what are alike in the two forms of the contract

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Mailbox rule under UCC

Properly addressed (and proper postage) dispatched acceptances are effective when dispatched - even if they are lost and never received by the offeror

-reasonable means of communication- if it gets there in the same time you can use that way

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Mailbox rule under Common Law

-acceptance upon dispatched

-same manner as the offer

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Nonauthorized form of acceptance (under common law) only binds upon ________

receipt

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Silence generally not acceptance (but there are 2 exceptions)

•Exception #1 -E.G., customary trade practice or prior dealings between the parties indicates that silence signals acceptance.

•Exception #2 - Offeree indicates that his silence will signal acceptance. OFFEROR cannot impose on the OFFEREE a duty to respond to the offer, but an OFFEREE can indicate that silence will equal acceptance.

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Death ends a contract EXCEPT:

real estate

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unconscionable contract

a contract that is grossly unfair or one-sided

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Consideration

"legal value, bargained for and given in exchange for an act or a promise" i.e., "the glue that holds the bargain together"

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promisor

the person who made the promise

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promisee

the person who the promise is made to

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Legal value can be established in 2 ways:

1.In exchange for the promisor's promise, the promisee does or agrees to do something he had no prior legal duty to do

2.In exchange for the promisor's promise, the promisee refrains from doing or agrees not to do something she has a legal right to do

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Promises that are not supported by consideration are generally unenforceable under common law

true

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Bargained for Exchange

A promisee's act or promise must have been bargained for and given in exchange for the promisor's promise

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Exchanges That Are Not Consideration (3 things)

•Illusory promises

•Preexisting duties

•Past consideration

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Illusory promises

promisee has not give the promisor anything of legal value in exchange for the promisor's promise

ex) paint your house when i feel like it

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Liquidated debts

debts in which parties have no dispute about the existence or amount of the debt

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Unliquidated debt

If there is a dispute about the existence or amount of the debt

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past consideration

an act or benefit given in the past that was not given in exchange for the promise in question

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Exceptions to Consideration Requirement

•State statutes that extend promises to pay debts that have been barred by statute of limitations or bankruptcy discharge

•Charitable subscriptions (like promissory estoppel)

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Output contract

one party agrees to buy all the other party's production of a particular commodity

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requirements contracts

supply all of another party's needs for a particular commodity

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UCC: does not require new consideration for a modification as long as the modification is in

good faith

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hybrid contracts use __________to determine

predominant factor test

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UCC dispenses with consideration requirement in two instances:

•Firm offer for sale of goods

•Contract modification for sale of goods

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modifications to a contract under common law

requires new consideration to support a modification of a K

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Contracts that are voidable (5 things)

1. misinterpretation

2. fraud

3. mistake

4. duress

5. undue influence

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Person claiming non-consent has power to

rescind (void)

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Person claiming non-consent must not act in a manner to

ratify (affirm) the contract

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A person who commits fraud may be liable in

tort for damages

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Misinterpretation

a false statement that may be innocent or fraudulent

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Innocent or Fraudulent Misrepresentation

Fact asserted was untrue material or was fraudulent

-the complaining party entered the contract on the reliance of the assertion

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concealment

active hiding of the fact

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nondisclosure

failure to volunteer information

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Scienter

Knowledge by the person making the representations, at the time when they were made that they were false.

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mistake

is a belief about a fact that is not in accord with the truth

-not a result from other party's untrue statements

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Mutual mistakes may be remedied by

reformation

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Requirements for Mistake

1.Mistake relates to a basic assumption on which the contract was made.

2.The exchange has a material effect on the agreed upon mistake.

3.The Party adversely affected by the mistake does not bear the risk of the mistake.

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Undue influence

wrongful pressure exerted on a person during the bargaining process (persuasion)

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Ratification

person who had the right to rescind elects not to, and by behavior affirms or ratifies the K.

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Duress

wrongful threat or act that coerces a person to enter or modify contract

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Requirements for Rescission on the grounds of Misrepresentation or Fraud

1.Untrue assertion, concealment or nondisclosure of fact (not an opinion or puffery)

2.Fact asserted was material OR the assertion was fraudulent

3.Complaining party entered the K b/c of his reliance on the assertion (a causal relationship)

4.Reliance of the complaining party was reasonable or justifiable

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Elements of misrepresentation

1.Untrue statement of fact

a. Fact vs. opinion

b.Nondisclosure and concealment = untrue

statement of fact

2.Fact is material

3.Reliance

4.Reliance is reasonable

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If BOTH parties are mistaken, contract can be avoided if all three elements are present:

1.Mistake relates to a basic assumption on which the K was made

2.Mistake has a material effect on the agreed-upon exchange

3.Party adversely affected by the mistake does not bear the risk of the mistake

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capacity

the ability to incur legal obligations and acquire legal rights

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WHO LACKS CAPACITY?

1.minors (contracts are voidable)

2.mental illness

3.intoxicated person (must be extreme)

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Minor avoids the contract by

disaffirmance- the right to avoid a contract

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EXCEPTIONS that cannot be disaffirmed by minors:

1.marriage

2. child support agreements

3. educational loans

4.insurance contracts

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