Pneumonic to remember
Armadillos From Texas Play Rap Eating Tacos. A: Applicable Law. F: Formation of Contract (agreement AND *is agreement legally enforceable). T: Terms of Contract. P: Performance. R: Remedies for Unexcused Nonperformance. E: Excuses for Nonperformance. T: Third Party Problems
legally enforceable agreement (contract is an agreement PLUS). express (communicated by language) or implied (conduct indicates assent to be bound)
equitable remedy (K law rules DO NOT apply). 1) P has conferred a benefit on D . 2) and P reasonably expected to be paid. 3) and D realized unjust enrichment if P not compensated. 4) Recovery: K price is not the measure of recovery. Focus is on value of benefit
Unilateral Contract definition
results from an offer that expressly requires performance as the ONLY POSSIBLE method of acceptance (focus on WHAT OFFER SAYS) (all others bilateral)
*common law OR UCC (sometimes law differs, depending on which one applies)
Applicable Law: Article 2 of the UCC:
applies for sales of goods. Type of transaction: sale. Subject matter of transaction: goods (tangible, personal property)
Law applicable to real estate?
*REMEMBER: REAL ESTATE is COMMON LAW*
What if it is a mixed deal (applicable law)?
General rule: all or nothing/more important part. Ex: K to buy car, included in it is lessons in parallel parking, goods part is more important so Art. 2 applies. Exception: if K divides payment, then apply UCC to sale of goods part and common law to rest (ex: buy yoyo for $10 and get cello lessons for $3,000)
*Formation of contracts: what to look for
first for agreement, then whether agreement is legally enforceable
First thing to look for under formation:
Agreement - need mutual assent (offer and acceptance): 1) initial communication (offer); 2) what happens after initial comm.. (was offer terminated) and 3) who responds and how responds (acceptance)
Second thing to look for under agreement:
is agreement legally enforceable?: look for consideration (or substitute) OR defenses to formation
Agreement (3 levels)
1) Offer. 2) Was offer terminated? 3) Acceptance
Offers (level 1)
Manifestation of Commitment: basic test is whether a reasonable person in the position of the offeree would believe that is or her assent creates a K
****Specific Problems for offer
(look at content and context of offer)
Content of Offer
generally, offer is NOT required to contain all material terms BUT: look for missing price term. AND vague/ambiguous material terms AND requirements K/output Ks
sale of real estate and missing price term
common law, price AND description required (ex: S offers to sell blackacre to B, no price term DOES NOT = offer)
sale of good and missing price term
Art 2, no price rqrmt (ex: S offers to sell car to B = offer)
vague or ambiguous material terms
(i.e. appropriate, fair, reasonable: if you see this: probably not an offer). **Ex: offer to sell car for a fair price IS NOT AN OFFER
requirements contracts/output contracts
(words: all, only, exclusively, solely). A K for the sale of goods can state the quantity of goods to be delivered in terms of buyer's requirements OR sellers output OR in terms of exclusivity *Ex: B to purchase ALL of its grits from S. is OK B can increase rqrmts, so long as increase in line w/ prior demands. ex: orders 1000 pounds of grits in 1st 3 yrs, 1020 in 4th. PERMISSIBLE increase: 10% or less OK, 25%+ unreasonable
Context of Offer
here, watch out for invitation to deal rather than an offer. Generally, an advertisement is NOT AN OFFER
Exception to advertisement rule
ad can be an offer if in nature of reward (i.e. promise to reward $100 to anyone who catches flu after using meds). Also, ad can be offer if specific as to quantity and expressly indicates who can accept (i.e. 1 fur coat $10- 1st come 1st served)
Termination of Offers (level 2):
*an offer CANNOT be accepted if terminated. 4 ways to terminate: 1) lapse of time. 2) death of party prior to acceptance. 3) words or conduct of OFFEROR. 4) words or conduct of OFFEREE
First, LAPSE of time:
time stated OR reasonable time
Second, DEATH of a party prior to acceptance:
general rule: death or incapacity of either party after the offer but before acceptance terminates offer (need not be communicated). Exceptions: option OR part performance of offer to enter into unilateral K
Third, words or conduct of OFFEROR (revocation):
1) unambiguous statement by offeror to offeree of unwillingness or inability to contract. 2) unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of. Ex: offer to sell car to x, then sell to y and x sees y driving it. can't accept. BUT if just offer to y, x can still accept (multiple offers does not revoke)
when is revocation effective?
NOT effective until received (i.e. letter). offer cannot be revoked after it has been accepted. ex: S offers to sell car to B for $400, B accepts. T offers $600 a day later, S CANNOT revoke his offer to B
offers that cannot be revoked. 4 situations
1) option. 2) firm offer rule. 3) reasonably foreseeable detrimental reliance. 4) start of performance for unilateral K
option: (2 rqrmts):
1) promise not to revoke (or promise keep offer "open") and 2) promise supported by payment or other consideration ("option") (ex: B pays S $10 for promise to keep offer to sell car open for 1 week)
****firm offer rule:
offer cannot be revoked for up to 3 mos if: 1) offer to buy or sell goods; 2) signed, written promise to keep offer open, and 3) party is a merchant (merchant is GENERALLY a person in business). note: NO payment requirement, but remember, must be signed. Ex: used car dealer offers to sell a '73 car for $400. Offer is signed by S and promises it will not be revoked for 6 mos. This offer is irrevocable only for 3 mos!!!!
offer cannot be revoked if there has been:
1) reliance that is 2) reasonably foreseeable and 3) detrimental. Ex: general contractor using subcontractors bid and G is awarded contract, there IS detrimental reliance
START of performance pursuant to an offer to enter into a unilateral K makes that offer irrevocable for a reasonable time to complete performance
Offer: only way to accept is to start painting. P starts painting. Can't revoke but: look for more preparation. same as above but P just buys paint. NOT enough (might trigger #3- promissory estoppel)
Fourth, words or conduct of OFFERREE (rejection)
(look for indirect rejection in one of 3 forms: 1) counteroffer; 2) conditional acceptance and 3) add'l terms). 1st 2 apply to all, 3rd just to common law
c-o ALWAYS terminates offer and becomes new offer. distinguish: counteroffer and bargaining. c-o: response is "I will only pay $9,000" (NEW offer, NOT accept). bargaining: response is "will you take $9,000?" in bargaining, response is usually a question and can later accept!!!
same as c-o. look for: if, only if, provided, so long as, but (*watch out: part of response will be "I accept," then one of these words). Ex: T adds para to K that says "I accept provided that all disputes resolved by arbitration..." NOT an acceptance!
DOES NOT apply to Art 2 sales of goods (adds new terms, not conditional). under common law: mirror image rule i.e. adds paragraph to contract to lease a building re: arbitration. NOT an acceptance. BUT: add'l terms still acceptance under UCC 2-207.
add'l terms under 2-207
2 ?s. 1) is there a contract? adding terms (BUT NOT conditional language) under UCC is seasonable expression of acceptance. 2) BUT, is new term part of contract? critical fact: are both parties merchants? if 1 merchant: new term is proposal that can be separately accepted/rejected. if BOTH merchants, general rule is that add'l term is part of K. UNLESS: 1) materially changes offer OR 2) offeror objects to change Ex: E offers to sell car to C. C responds. "I accept, deliver it on Saturday." YES, contract, but NO Saturday delivery term (NOT both merchants)
Acceptance (level 3)
if not terminated, go here. 6 possible fact patterns
FIRST, Later conduct (even if there is c-o or cond. acceptance that technically destroys): under common law)
Ex (common law): T signs lease that says "I accept on condition that all disputes arbitrated." Technically NOT an acceptance, but what if L sends T keys to building, T takes over & later a dispute. Is there a contract? YES Ts response killed L's offer BUT served as a c-o. Then, L's performance counted as acceptance of c-o. Is arbitration part of K? YES
Later conduct under Art 2
Ex (Article 2): Same as above, but suits instead of house. B sends purchase order, S sends back accepting "only if arbitration term part of K." S sends suits, B keeps and pays for them. YES, contract but here, based purely on conduct!! Is arbitration part of K? NO!!! (terms lmted to those that appeared in both communications)
SECOND, Offeree FULLY performs
verbal offer, BUT no words of response INSTEAD only response is FULL performance. will turn on notice, which comes up b/c of geography. i.e. ask P to paint house, but live in another state. P doesn't orally accept but paints house. Is a K, BUT obligation to pay P is excused if P doesn't give notice.
THIRD, Offeree STARTS to perform
General rule: start of performance is acceptance treated as implied promise to perform so YES, contract. Ex: K to paint house, silent as to method of acceptance. P starts to paint. YES, acceptance Exception: start NOT acceptance for unilateral K. Completion rqrd. SO, if performance (painting) only way to accept, starting to paint is NOT acceptance.
FOURTH, Offeree PROMISES to perform (only words)
Depends on if bilateral (promise ok) or unilateral (HAVE to perform, so promise not enough)
FIFTH, Mail box rules
1) Acceptance is generally effective when mailed. 2) All other communications effective when received. 3) If rejection is mailed before acceptance is mailed, neither is effective until received. examples: 1) Jan 10 C mails acceptance; Jan 11, C receives letter revoking offer. YES contract, acceptance controls b/c mailed before. 2) Aug 8 mail letter rejecting, Aug 9 mail letter changing mind and accepting. If rejection arrives first, NO contract. If acceptance arrives first, YES contract (what arrived first)
SIXTH, The seller of goods sent the "wrong goods"
General rule: acceptance and breach (sends blue instead of red- by sending you accept, but you breach). Exception: Accommodation (= explanation): send blue w/ note that says "out of red sorry" NO acceptance, NO breach
WHO can accept?
Generally, offer can be accepted only by: 1) person who knows about offer (reward). if you are offering reward for finding dog and someone does it w/o knowing of reward NOT acceptance. 2) the person to whom it was made. Offers are nonassignable!! BUT, yes CAN assign options. (paid for promise not to revoke)
If meet 3 levels above, there is an agreement. BUT, Is agreement legally enforceable? (what are reasons why it is not enforceable?:
Consideration and Defenses (lack of capacity, SoF, illegality, duress, etc)
3 steps. Bargained for legal detriment first: ID promise maker/promise breaker second: ask whether person asked for something in return for promise. third: person who is trying to enforce promise what legal detriment sustained?
Forms of Consideration
1) performance 2) forbearance 3) Promise to perform 4) Promise to forbear
look for EXCHANGE. ex: A promises B to renew lease at same rate. B paints apt, A increases rent. NO consideration. A did not ASK B to paint apt. (BUT maybe p.e.)
no rqrmt that there is actual detriment (i.e. stop listening to music for $100)
promise as consideration
promise to buy/sell: there IS consideration. BUT no consid. for illusory promise (promise to sell unless I change mind). too easy, if illusory promise is answer, probably WRONG!!
adequacy of consideration.
general rule: NOT CONSIDERATION after someone saves your kid, primes to pay. NO consideration. BUT EXCEPTION!
exception to past consideration general rule
expressly requested AND expectation of payment. ex: ask someone to save your kid, know that they would expect to be paid. AFTER saves, promise to pay, this is legally enforceable
preexisting contractual or statutory duty rule COMMON LAW RULE
common law: need new consideration for contract modification ex: K to perform for $15,000. refuse to do unless paid $20,000. Can't sue if try to pay you only $15,000 exception: addition to or change in performance ex: above but also sing extra song. YES, consideration exception: unforeseen difficulty so severe as to excuse performance. ex: same as (a) but extra $ is for broken sound system. YES, consideration exception: 3rd party promise to pay. ex: 3rd party promises to pay $5,000.
preexisting contractual or statutory duty rule Article 2 Rule:
DOES NOT have a pre-existing legal duty rule. DO NOT need consideration. Good faith is the test for changes in existing sales of good K. ex: K to sell goods for $1000. then tells that cannot deliver for less than $1300. no new consideration BUT legally enforceable
part payment as consideration for release, i.e. promise to forgive balance of debt.
**key: is debt due and undisputed. THEN part payment is NOT consideration for release. ex: (will be on exam!!!): D owes C $3,000. debt is due and undisputed. Agree that D will pay 2000 and no action to collect remainder. C did NOT receive new consid. for promise to release Agreement re: no action to collect remainder NOT ENFORCEABLE. BUT if not yet due or disputed. There IS new consideration for new promise and CANNOT collect (agreement IS enforceable!)
Consideration substitutes (if cannot find consideration look for...)
1) written promise to satisfy an obligation for which there is a legal defense 2) Seals (new majority rule: NOT consid substitute). 3) Promissory estoppel
written promise to satisfy an obligation for which there is a legal defense:
ex: D owes C $1000. SoL has run, so C cannot collect. D writes see saying "I will pay you $600." NO consideration (D not bargaining for anything), BUT it IS ENFORCEABLE
Promissory estoppel - Elements:
1) Promise. 2) reliance that is reasonable, detrimental, and foreseeable. 3) enforcement necessary to avoid injustice
Comparison btwn P.E. and consideration
look for someone doing stuff no one asked them to do. -ex: painting house, even if didn't ask you, to when promised that wouldn't increase rent
Who lacks capacity?
1) under 18. 2) mental incompetents (lack ability to understand). 3) intoxicated persons (if other party has reason to know)
Consequences of incapacity
1) right to disaffirm by person w/o capacity C hires infant to do lecture, if infant does not do it, C can't enforce. BUT if I does lecture, CAN enforce against C for payment. 2) implied affirmation by retaining benefits after gaining capacity (ratification). 17 y/o buys car on credit, keeps car and does not pay. When turns 18, CAN enforce.. 3) quasi contract liability for necessaries person w/o capacity legally obligated to pay for necessities (food, clothing, med care) but that is based on quasi-K law, NOT K law. i.e. fair rent, reasonable value
Statute of Frauds Defense (IMPORTANT!!!): Background
Background: designed to prevent fraudulent claims- harder to "fool: court by claiming that there is a K, need special proof that such a K exists
THREE primary SoF issues
1) Is the K w/in the SoF?. 2) If So, is the SoF satisfied?. 3) If there a SoF defense? SoF is a defense to enforcement. requires "special proof"
Contracts WITHIN the SoF
(6 of them- 4-6 are big 3) 1) Promises to answer for (guarantee) the debts of another (suretyship). 2) Promises by executor to "answer for personally" ("guarantee" personally) the debts of the decedent 3) Promise in consideration of marriage. 4) Service K not capable (capable = theoretically possible w/ unlmtd resources) of being performed w/in a year form time of K. 5) Transfers in real estate (w/ exception for leases of 1 year or less). 6) Sale of goods for $500 or more
Promises to answer for (guarantee) the debts of another (suretyship)
not just promise to pay, but promise to pay if someone else does not. guarantee. ex: P buys from S, S alleges that C promised to pay if P didn't. This is a guarantee!! BUT: if main purpose of promise guaranteed is to benefit guarantor, NOT w/in SoF. ex: above but P buying paint from P to paint C's house. NO SoF
Promises by executor to "answer for personally" ("guarantee" personally) the debts of the decedent
Executor promises C to guarantee personally balance of estate
Promise in consideration of marriage
Do something or refrain from doing something if the parties marry
Service K not capable (capable = theoretically possible w/ unlmtd resources) of being performed w/in a year form time of K
specific time period, more than one year, SoF applies. ex: P claims that D agreed to employ her for 3 yrs. YES w/in SoF. whether or not P can terminate early is IRRELEVANT specific time, more than 1 yr from date of K- SoF applies. ex: hired jan 15 '08 to perform Dec 24 '09. . ex: employment for a yr, starting next month.. SoF does NOT apply to life.
Transfers in real estate (w/ exception for leases of 1 year or less)
p claims that D agreed to build house on property. NOT w/in SoF- not a transfer. p claims that D agreed to SELL redacre for $400, YES w/in SoF. agreement to sell 2 yr easement also w/in SoF. BUT: P claims that D agreed to lease blackacre for 1 yr. NOT w/in SoF
Sale of goods
for $500 or more!!!!!!!!!
How is SoF satisfied
(performance and writing and judicial admission) OR is there a SoF defense? (another way to phrase question). If rqrmts not satisfied, there is a SoF defense. and if there is a SoF defense asserted and established, there is no legally enforceable agreement- NO K liability! (read question carefully!)
(depends on type of K) (note: these Ks will be ORAL)
Performance of Services K
2 ways to satisfy. 1) full perf by either party satisfies SoF. 2) part perf of services K does NOT satisfy SoF.. P agrees to work for D for 3 yrs, P works for 13 mos and D fires w/o cause SoF NOT satisfied (yes SoF defense). note: can prob recover under quasi-K
Performance of Sale of goods Ks
(general rule: part perf. satisfies but only to extent of part perf). Ordinary goods: Delivered good. S orally agrees to sell 2000 bags of grits, delivers only 600. B asserts SoF defense for nonpayment- NO GOOD Ordinary goods: undelivered goods. same as above but B sues S for failure to deliver remaining bags. Does S have SoF defense. YES. Specially manufactured goods exception: SoF satisfied as soon as seller makes a substantial beginning (i.e. custom shoes, B cancels order, does NOT have a SoF defense!!!)
Performance and transfers of interests of real estate:
Part perf. by buyer of real estate can satisfy (2 of 3 of below!!= part perf!) 1) full or part payment. 2) possession. 3) and/or improvements. Full payment alone NOT ENOUGH . B agrees to buy blackacre from S, B pays cash, S refuses to sell. Only one of the 3 above so YES SoF defense!! note: can sue and recover under equitable principles
(remember not every writing satisfies SoF, and CAN be satisfied w/o writing- performance above)
common law writing:
all material terms test: can you answer WHO and WHAT??? "your offer of Jan 15 is accepted." does NOT satisfy SoF doesn't have to be long **also, look at who signs. MUST be signed by person asserting SoF defense
writing MUST CONTAIN quantity term!!!! (not how much paying) Generally, must be signed by person asserting SoF defense. BUT exception under UCC: if both parties are merchants and person who receives a signed writing w/ quantity term that claims there is a K fails to respond w/in 10 days of receipt. Ex: S receives fax from B: "as we agreed on phone, you will be sending me 200 more pounds of grits for $500, signed B" S does not respond or send grits. B sues S for breach of K. S asserts SoF defense- BUT SoF HAS BEEN satisfied, even though S did not sign!!!
Admit in pleading that there was an agreement, NO SoF defense!!!
Other uses of SoF on bar exam (other than whether SoF defense to enforce agreement)
1) Authorization to enter into K for someone else. 2) K modification
Authorization to enter into K for someone else
*Depends: authorization must be in writing ONLY if the K to be signed w/in SoF Ex: A arranges for B to sign lease for her. If lease is 2 mos, authorization does NOT need to be in writing, if for 2 yrs, it does!!!
Contract modification (will be on exam). When does law require written evidence of modification of written K?
FIRST, look at deal w/ alleged change. SECOND, determine if deal w/change would be w/in SoF. Exs: T leases building for 1 yr, L claims they later agreed to increase to 3 yrs. writing is REQUIRED BUT T leases for 3 yrs, L claims agreed to decrease to 1 yr, writing NOT REQURED as matter of law. What if agreement is in writing and requires that all modifications in writing? common law: this requirement is INEFFECTIVE (ignore). UCC: this provision is effective UNLESS WAIVED!!!
Illegal Subject matter/ Illegal purpose
1) subject matter: i.e. agreement to pay to cause physical injury NOT legally enforceable. 2) illegal purpose: buy plane ticket to go cause physical injury, have to pay for plane ticket! (flying is perfectly legal)
look for exculpatory agreement that exempts intentional or reckless conduct from liability
Misrep or Nondisclosure:
look for false assertion of fact OR concealment of facts. Misrep: NO fraud requirement Nondisclosure: MAY require fraud
physical or economic Economic: "bad guy"- improper threat "vulnerable guy"- no reasonable alt. (*NEED this element also, not just bada guy)
Unconscionability (not heavily tested)
empowers ct to refuse to enforce all or part of contract. Look for: unfair surprise and oppressive terms. As of time of agreement made
Misunderstanding, i.e., Ambiguity in Words of Agreement.
NO contract if: 1) Parties us a material term that is open to at least 2 reasonable interps; 2) each party attaches different meaning; 3) neither party has reason to know term is open to 2 interps (ship- Peerless example)
Mistake of Fact Existing at Time of Contract
**don't confuse w/ misrep- this is about a party getting the wrong idea on their own
Mutual Mistake of material fact. No K if:
1) both parties mistaken as to a (2) basic assumption of fact, AND (3) the mistake materially affects the bargain, AND 4) not a risk that either party bears (most likely tested on this). -ex: S sells blackacre to B for farming, but then discovers oil deposits in the ground. S can't rescind b/c the mistake was unilateral. S bears risk of knowing what it is that he is selling, so a mistake as to value is generally not a defense. BUT, if facts show that S accepts $100 for a "topaz" that turns out to be a diamond worth $10,000, S CAN rescind if both parties were mistaken in good faith at the time of the sale.
Unilateral mistake of material fact:
look for where other party had reason to know