Contracts, MBE

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CMR and Epstein

Seven General Areas

Armadillos from Texas play rap, eating tacos: Applicable Law; Formation of Contracts; Terms of Contract; Performance; Remedies for Unexcused Nonperformance; Excuse of Nonperformance; Third-party Problems

Vocabulary: Contract

Legaly enforceable agreement (or legall enforceable promise)

Vocabulary: Quasi Contract or Implied in Law Contract

Not a contract at all; one party is unjustly enriched at the expense of the other party, so that the enriched party must pay restitution to the other party equal to the unjust enrichment

Elements: Quasi Contract

1. P has conferred a benefit on D, and
2. P reasonably expected to paid, and
3. D realized unjust enrichment if P not compensated

Measure of Recovery: Quasi Contract

Contract price is not the measure of recovery; focus on value of benefit conferred; the contract price is a celing if P is in default

Vocabulary: Unilateral Contract

Acceptance by performance; results from an offer that expressly requires completion of performance as the only possible method of acceptance (look for "offer" followed later in the sentence by "only if")

Vocabulary: Bilateral Contract

Exchange of mutual promises; each party is both a promisor and a promisee

A contract is bilateral, unless . . .

1. Reward, prize, contest
2. Offer expressly requires completion of performance as the only manner of acceptance

Article 2 of the UCC applies to . . .

Contracts that are primarily sales of goods

Vocabulary: Goods

All things movable at the time they are identified as the goods to be sold under the contract; most tangible things (e.g., cars, horses, hambureges)

What is the applicable law for real estate transactions?

Common law

What is the applicable law for service agreements?

Common law

Vocabulary: Merchant

One who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved; generally, almost anyone engaged in business is a "merchant"

Vocabulary: Express Contract

Promises are communicated by language

Vocabulary: Implied in Fact Contract

Parties' conduct indicates that they assented to be bound

Vocabulary: Void Contract

One that is totally without any legal effect from the beginning; it cannot be enforced by either party

Vocabulary: Voidable Contract

One that one or both parties may elect to avoid

Vocabulary: Unenforceable Contract

An agreement that is otherwise valid but which may not be enforceable due to a defense extraneous to contract formation, such as a statute of limitations or the Statute of Frauds

What are the three (3) basic questions to ask in detemrining whether there is in fact a contract?

1. Was there mutual assent?
2. Was there consideration or some substittue for consideration?
3. Are there any defenses to creation of the contract?

Elements: Contract

1. Mutual assent, and
2. Consideration, and
3. No defenses

Elements: Mutual Assent

1. Offer, and
2. Acceptance

Vocabulary: Offer

An offer is a manifestation of a present intent to contract demonstrated by a promise, undertaking or commitment, stated in definite and certain terms, and communicated to an identifiable offeree. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract.

Acceptance must be before . . .

Termination by revocation, rejection, or operation of law

Elements: Consideration

1. Bargained-for exchange of something of legal value, or
2. Substitute for consideration

Types of Defenses to Contract Formation

1. Mistake
2. Lack of capacity
3. Illegality
4. Statute of Frauds

In deciding whether a communication creates a reasonable expectation, the three (3) basic questions to ask are . . .

1. Was there an expression of a promise, undertaking, or commitment to enter into a contract?
2. Were there certainty and definiteness in the essential terms?
3. Was there communication of the above to the offeree?

Rule: Mixed Deal

All or nothing; what is the more important part

Exception: Mixed Deal

If the contract divides payment, then apply the UCC to the sale of goods part and the common law to the rest

Epstein's Two-part Approach to Formation

1. Look for an agreement
2. Determine whether the agreement is legally enforceable

According to Epstein, in looking for an agreement, one should watch for infomraiton int he question about . . .

1. Initial communication
2. Termination of the offer (what happens after the initial communication)
3. Acceptance (who responds and how she responds)

General Test: Offer

An offer is a manifestation of an intention to contract (words or conduct showing commitment)

General Test: Manifestation of Commitment

Whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract

Is it required that an offer contain all material terms?

Generally, no; as long as there is a reasonably certain basis for giving a remedy, a could can supply reasonable terms for those that are missing.

What happens if the price term is missing in a contract for the sale of real estate?

Under common law, the price and legal decription are required; without these two terms there is no offer

What happens if the price term is messing a contract for the sale of goods

Under Article 2, there is no price requirement; there is an offer if the parties so intended

What happens if an offer contains vague or ambiguous material terms (appropriate, fair, reasonable, TBD)?

Under common law and the UCC, there is no offer

Vocabulary: Requirements Contract

Buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount ot the buyer

Vocabulary: Output Contract

Seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller

Increase in Requirements

Buyer can increase requirements so long as the increase is in line with prior demands; "not unreasonably disporportionate limitation on increases"

Is an advertisement an offer?

Generally, no

What are the two excpetions to the general rule that an advertisement is not an offer?

1. An advertisement cna be an offer if it is in the nature of a reward (e.g., company promises $100 reward to anyone who catches the flu after using its product as directed)
2. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept (e.g., store advertises "1 fur coat $10---first come, first served)

What happens if an offer for services does not include the nature of the workd to be performed?

No offer

In determining whether there was intent to enter into a contract, look at . . .

1. Language
2. Surrounding circumstances (e.g., statements reasonably understood to have been made in jest, anger, or for the purpose of bragging)
3. Prior practice and relationship of the parties
4. Method of communication (i.e., the broader the communicating media, the more likley it will be viewed as a solicitation of an offer; advertisements)

What are the four (4) methods of terminating an offer?

1. Lapse of time
2. Death of a party prior to acceptance
3. Revocation
4. Rejection

When will an offer terminate (become "dead") due to lapse of time?

Under the lapse rule, an offer automatically terminates after the time for acceptance has expired, and when no time for acceptance is stated, after a reasonable time.

General Rule: Termination of an Offer due to Death

Death or incapacity of either party after the offer but before acceptance terminates the offer

What is the only exception to the general rule that an offer terminates if either party dies or become incapacitated after the offer but before acceptance?

Irrevocable offers

What are the two ways in which an offer may be revoked?

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 the offeree is aware of

If an offeror makes offers to multiple parties, is this considered revocation?

No.

How is an offer by publication revoked?

Only by publication through comparable means (e.g., an offer placed in a newspaper cannot be revoked by publication in a magazine)

When is revocation of an offer effective?

When received by the offeree, or, if the offer was through publication, when published

Can an offer be revoked after it has been accepted?

No.

What are the four (4) types of irrevocable offers?

Options, UCC "Firm Offer Rule", Detrimental reliance, Part Performance in a unilateral contract

Vocabulary: Irrevocable

Cannot be revoked

Vocabulary: Revocable

Possible to revoke

Vocabulary: Revoked

Offer is terminated or "dead"

Elements: Option

1. Promise to not to revoke, or to keep the offer "open", and
2. Payment or other consideration supporting this promise

Elements: UCC "Firm Offer Rule"

1. A merchant
2. Offers to sell goods
3. The offer to sell goods is in a signed writing, and
4. The writing gives assuances that it will be held open
The offer is irrovocable for the stated time period, or, if no time period is stated, for a reasonable amount of time not to exceed three months

Elements: Detrimental Reliance

1. Reliance that is
2. Reasonable foreseeable and
3. Detrimental

What is the effect of detrimental reliance on an offer?

The offer will be held to be irrevocable as an option contract for a reasonable length of time; at the very least, the offeree would be entitled to relief measured by the extent of any detrimental reliance

What is the effect of partial performance of a unilateral contract

The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance; here, partial performance makes the offer irrevocable, but does not constitute acceptance since there is not yet complete performance

The three methods of indirect rejection are . . .

1. Counteroffer
2. Conditional acceptance
3. Additional terms: (a) Mirror Image Rule (common law only); (b) Seasonal expression of acceptance (UCC)

Distinguish "Counteroffer" from "Bargaining"

A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms; however, bargaining is an inquiry that is consistent with the idea that the offeree is still keeping the original proposal under consideration.

Test: Bargaining

Whether a reasonable person would believe that the original offer had been rejected

What is the effect of a rejection of or a counteroffer to an option?

It does not terminate the offer and the offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree's rejection

What is the effect of a counteroffer?

A counteroffer amounts to a rejection (termination) and a new offer; however, bargaining does not terminate the offer

What is the effect of a conditional acceptance (e.g., "if," "only if," "so long as," "but," or "on condition that")?

A conditional acceptance always operates the same way as a counteroffer: it terminates the offer and becomes a new offer

Vocabulary: Mirror Image Rule

Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an aceptance

What are the two questions raised when a fact pattern involves an offer to buy or sell goods and a response that includes additional terms?

1. Is there a contract?
2. Is the additional term a part of the contract?

With a seasonable expression of acceptance question, how is the first question (Is there a contract?) answered?

Under the UCC, a response to an offer that ads new terms, but does not make the new terms a condition of acceptance, is generally treated as an acceptance

As to whether a contract exists (when evaluating a seasonable expression of acceptance), does it matter whether the parties are merchants?

Whether the parties are merchants is irrelevant in answering this first question of whether there is a seasonable expression of acceptance

With a seasonable expression of acceptance question, how is the second question (Is the additional term a part of the contract?) answered?

Look to see whether both parties are merchants: if at least one is not a merchant,, the additional term is merely a proposal that is to be separately accpeted or rejected; however, if both parties are merchants, the general rule is that the additional term is part of the contract

What are the two important exceptions to the general rules of seasonable expression of acceptance?

1. If the additional term materially changes the offer, then it is not a part of the contract
2. If the offeror objects to the change, then the additional term is not a part of the contract

What are the six (6) possible acceptance fact patterns?

1. Improper verbal response (indirect rejection) to an offer then later conduct indicating a contract
2. The offeree fully performs
3. The offeree starts to perform
4. The offeree promises to perform
5. Mail box rules
6. The seller of goods sends the "wrong" goods

What is the common law rule regarding acceptance via improper verbal response to an offer then later conduct indicating a contract?

Under common law, an improper verbal response (i.e., an indirect rejection) is treated as a counteroffer and the later conduct is treated as acceptance of that counteroffer; thus, all the terms of the the conditional acceptance are part of the contract

What is the UCC rule regarding acceptance via improper verbal response to an offer then later conduct indicating a contract?

Under the UCC, the contract is based solely on the conduct: the indirect rejection is not treated as a counteroffer and is not part of the contract; thus, the terms appearing only in the indirect rejection are not part of the contract

Where the offeree fully performs as his method of acceptance, what two factors are considered in order to determine if notice is required?

1. Wwhat the offer requires, or
2. Whether the offeree has reason to believe that the offeror will not learn of hte acceptance

Does an offeree's start of performance constitute acceptance in a bilateral contract?

Start of performance is acceptance of an offer to enter into a bilateral contract; starting to perform is treated as a promise to perform and so there is a bilateral contract

Does an offeree's start of performance constitute acceptance in a unilateral contract?

Start of performance is not aceptance of unilateral contract offers---completion of performance is required; since start of performance isan implied promise to permorm and unilateral conttracts cannot be accepted bya promise, an offer that requires performance for acceptance must necessarily mean completion of performance

Distinguish: Preparations to perform and part performance

Substantial preparations to perform do not make the offer irrevocable but may constitute detrimental reliance sufficient ot make the offeror's promise binding to the extent of the detrimental reliance

Does an offeree's promise to perform constitute acceptance?

Yes. Most offers can be accepted by a promise to perform; notable exceptions to this general rule include offers that expressly require performance for acceptance and reward offers

General Rule: Seller sends the "wrong" goods

Acceptance and breach

What is the exception to the general rule involving a seller who simply sends the "wrong" goods?

Accommodation (i.e., explanation) will be considered a counteroffer and not a breach; here, delivery of the wrong goods with an explanation does not qualify as acceptance, but merely a counteroffer; thus, there is no contract yet, nor a breach of contract

Generally, who can accept an offer?

1. A person who knows about the offer, and
2. Is the person to whom the offer was made

Can offers be assigned?

No

Can options be assigned?

Yes, unless the option provides otherwise

What are the four (4) mailbox rules?

- All communications other an acceptance are effective only when received
- Acceptance is generally effective when mailed
- If a rejection is mailed before an acceptance is mailed, then neither is effective until received (first received wins). But, if acceptance is mailed just before rejection and rejection is received first, there is only no contract if the offeror detrimentally relies on the rejection prior to receiving the acceptance
- An option deadline cannot be met using the mail box rule

What are the eleven (11) legal reasons for not enforcing an agreement?

1. Lack of consideration or a consideration substitute for the promise at issue
2. Lack of capacity of the person who made the promise
3. State of Frauds
4. Existing laws that prohibit the performance of the agreement
5. Public policy
6. Misrepresentations
7. Nondisclosure
8. Duress
9. Unconscionability
10. Ambiguity in words of agreement
11. Mistakes at the time of the agreement as to the material facts affecting the agreement

What three steps should be taken in dealing with a consideration question?

Identify the promise breaker

Ask whether that person asked for something in return for her promise (i.e., bargained for something)

Look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained

What four (4) forms does consideration take?

1. Performance (i.e., doing something not legally obligated to do)
2. Forbearance (i.e., not doing something legally entitled to do)
3. Promise to perform
4. Promise to forbear

Elements: Consideration

1. There must be a bargained-for exchange between the parties, and
2. That which is bargained for must be considered of legal value or must constitute a benefit to the promisor or a detriment to the promisee

Vocabulary: Bargained-for Exchange

This element of consideration requires that the promise induce the detriment and the detriment induce the promise

Is a gift considered a bargained-for exchange?

No

What is the legal effect of past consideration or moral consideration?

A promise given in exchange for something already done does not satisfy the bargain requirement

What is the exception to the general rule regarding past consideration?

If the past action was expressly requested by the promisor and there was an expectation of payment by the promisee, then there will be consideration found

What is the common law rule regarding a preexisting contractual or statutory duty?

Doing what you are already legally obligated to do is not new consideration for a new promise to pay you more to do merely that; new consideration is required for contract modification. If the parties agree to modify their k, consideration is usually found to exist where the obligations of both parties are varied (e.g., modification should not benefit only one party).

What are the three (3) exceptions to the common law rule regarding a preexisting contractual or statutory duty?

1. Addition to or change in performance
2. Unforeseen difficulty so severe as to excuse performance
3. Third party promise to pay

What is the rule under the UCC regarding a preexisting contractual duty?

Article 2 does not have a preexisting legal duty rule. New consideration is not required to modify sale of goods contracts; good faith is the test for changes in an existing sale of goods contract

What is the standard regarding adequacy of consideration?

Generally, courts do not inquire into the adequacy of consideration; however, if something is entirely devoid of value, it is insufficient (e.g., sham consideration). If there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence

What if there is an honest dispute as to the preexisting duty, will consideration be found in a modification?

Yes

What is the key in determining whether part payment as consideration for release of a debt is sufficient?

Whether the debt is due and undisputed: if the debt is due and undisputed, then part payment is not consideration for release

What are the three (3) types of consideration substitutes?

1. Seals
2. A written promise to satisfy an obligation for which there is a legal defense
3. Promissory estoppel (detrimental reliance)

Elements: Promissory Estoppel

1. Promise
2. Reliance that is reasonable, detrimental, and foreseeable
3. Enforcement necessary to avoid injustice

What is the amount of recovery under a promissory estoppel theory?

Recovery is limited to that which justice requires

Who lacks capacity to contract?

1. Infants (i.e., under 18)
2. Mental incompetents
3. Intoxicated persons jif the other party has reason to know of the intoxication

What is the test for mental incompetency?

Whether the person lakcs the ability to understand the agreement

What are the possible outcomes of a contract made with an individual who lacks capacity due to infancy?

1. The person without capacity has the right to disaffirm the contract
2. Implied affirmation
3. Quasi-contract liability for necessaries

Vocabulary: Implied Affirmation

If the person who lacked capacity when the contract was made retains the benefits of the contract after gaining capcity, he is then said to have ratified the contract

Vocabulary: Necessaries

A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care, or shelter, but liability is based on quasi-contract law, not contract law

What are the possible outcomes of a contract made with an individual who lacks capacity due to mental incompetence?

One whose mental capacity is so deficient that he is incapable of understanding the nature and significance of a contract may disaffirm when lucid or by his legal representative; he may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action; in other words, the contract is voidable; mental incompetents are also liable in quasi-contract for necessities furnished during the incapacity

What are the possible outcomes of a contract made with an individual who lacks capacity due to intoxication?

One who is so intoxicated that he does not understand the nature and significance of his promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication; the intoxicated person may affirm the contract upon recovery and there may be quasi-contractual recovery for necessities furnished during hte period of incapacity

Vocabulary: Statute of Frauds

Designed to prevent fraudulent claims of the existence of a contract by making harder to fool the court

What are the two (2) special types of proof required to satisfy the statute of frauds?

Performance and a writing signed by the person who is asserting that there was no agreement

What are the three steps in analyzing a statute of frauds question?

1. Is the contract within the statute of frauds?
2. If, so, is the statute of frauds satisfied?
3. Is there a statute of frauds defense

What six types of contracts are within the statute of frauds?

- Promises to answer for the debts of another (guarantee and suretyship)
- Promises by an executor to answer personally the debts of the estate
- Promises in consideration of marriage
- Service contracts not capable of being performed within a year from the time of the contract
- Transfers of interests in real estate
- Sales of goods for $500 or more

Does the statute of frauds require that the contract be in writing?

No, it requires only that there be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract

What is the legal standard regarding the signature in a statute of frauds case?

The signature requirement is liberally construed by most courts: it need not be hand-written; it can be printed or typed; a party's initials or letterhead may also be sufficient

What five (5) interest in land are included under the statute of frauds?

1. Leases for more than one year
2. Easements of more that one year
3. Fixtures
4. Minerals or structures if they are to be severed by the buyer
5. Mortgages and most other security liens

In what three (3) ways can one satisfy the satute of frauds?

1. Performance
2. Signed writing
3. Judicial admission

The rules for satisfaction of the statute of frauds by performance vary depending on whether the contract is . . .

A services contract, a contract for the sale of goods, or a real estate transfer

What level of performance is necessary to satisfy the statute of frauds with a services contracts?

Full performance by either party

What effect does a seller's part performance on a normal goods contract under the statute of frauds?

The general rule is that part performance of a contract for the sale of goods satisfies the statute of frauds, but only to the extent of the part performance

What effect does a seller's part performance on a specially manufactured goods contract under the statute of frauds?

The statute of frauds is satisfied as soon as the seller makes a sustantial beginning, which means that the seller has done enough work that it is clear that what he is working on is specially manufactured

Regarding transfers of interests in real estate, what does the statute of frauds require for satisfaction when there is only part performance?

Part performance requires that the buyer have done any two of the following three:
1. Payment
2. Improvements
3. Possession

Distinguish: Satisfying the statute of frauds under the UCC compared to other cases

Cases other than those involving the UCC require that the writing(s) contain all material terms, which means the "who" and the "what," and it is signed by the person who is asserting the statute of frauds defense; under Article 2, the writing must indicate that there is a contract for the sale of goods and contain the quantity term (i.e., how many), as well as be signed by the person asserting the statute of frauds defense; however, the UCC has an exception to this general rule

What is the UCC's exception to the general rule that the statute of frauds is only satisfied if signed by the person asserting the defense?

The exception is based on the merchant's failure to respond to a signed writing from another merchant and has three (3) requirements
1. Both parties must be merchants
2. The person who receives a signed writing with a quantity term claims that claims there is a contract
3. The person who received the signed writing fails to respond within ten day sof receipt

In what ways can a party satisfy the statute of frauds by judicial admission?

By admitting the existence of a contract under oath, e.g., a pleading, deposition or other testimony

Does the statute of frauds rules require that a person entering into a contract for someone else have written authorization to do so?

The authorization must be in writing only if the contract to be signed is within the statute of frauds ("equal dignity")

Does the statute of frauds require written evidence of modification of a written contract?

If the deal with the alleged change would be within the statute of frauds, then the alleged modification must be in writing

If a written agreement requires that all modifications be in writing does violating such a provision raise a statute of frauds defense?

Under common law, contract provisions requiring that all modification be in writing are not effective; under the UCC, such provisions are effective, unless waived (this includs contracts for the sale of goods no matter the price)

Distinguish: Illegal subject matter and illegal purpose

If the subject matter is illegal, the agreement is not enforceable; if the subject matter is legal but the purpose is illegal, the agreement is enforceable only by the person who did not know of the illegal purpose

What two fact patterns are likely to make a contract unenforceable because they violate public policy?

An exculpatory agreement that exempts intentional or reckless conduct from liability or a covenant not to compete without a reasonable need or reasonable time and place limits.

If a party induces another to enter into a contract by using fraudulent misrepresentation (e.g., by asserting information he knows is untrue), the contract is . . . ?

Voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation (fraud in the inducement)

If a misrepresentation is not fraudulent, the contract is . . . ?

Voidable by the innocent party if she justifiably relied on the misrepresentation and the misrepresentation was material

When is a misrepresentation material?

1. The information asserted would induce a reasonable person to agree, or
2. The maker of the misrepresentation knew the information asserted would cause a particular person to agree

Is non-disclosure ground for not enforcing an agreement?

Yes, if the non-disclosure was wrongful

Elements: Economic Duress

1. Improper threat (bad guy)
2. No reasonable alternative (vulnerable guy)

What are the two basic elements of unconscionability

1. Unfair surpise (procedural)...the process that led to the agreement (e.g., print so small buyer could not read it...some flaw in the agreement process)
2. Oppressive terms (substantive)...the terms are harsh and oppressive. The test is at the time of the contract.

Who determines if a contract is unconscionable?

The judge

At what point in time is the unconscionability of a contract evaluated?

At the time the contract was entered into

There will be no contract due to ambiguity in words of agreement if . . . ?

1. The parties use a material term that is open to at least two reasonable interpretations
2. Each party attaches a different meaning to the term
3. Neither party knows or has reason to know the term is open to at least two reasonable interpretations

Vocabulary: Mutual Mistake of Fact

Where both parties entering into a contract are mistaken about facts relating to the agreement.

What is the effect of a mutual mistake of fact?

The contract may be voidable by the adversely affected party if
1. The mistake concerns a basic assumption on which the contract is made
2. The mistake has a material effect on the agreed-upon exchange
3. The party seeking avoidance did not assume the risk of the mistake

Is mistake in value a defense to contract enforceability?

No

Vocabulary: Unilateral mistake

Where only one of the parties is mistaken about facts relating to the agreement

What is the effect of a unilateral mistake?

The mistake will not prevent formation of a contract; however, if the nonmistaken party knew or had reason to know of the mistake made by the the other party, the contract is voidable by the nonmistaken party

What is the effect of one party being aware of a latent ambiguity?

The contract is formed based on the reasonable understanding of the ignorant party

In determining the terms of a contract, what three (3) areas should be considered?

1. Look for information about words used by people making the contract
2. Look for information about past or similar deals
3. Think about UCC warranty, delivery, and risk of loss terms if it is a sale of goods

What is the underlying premise regarding partis' words and the parol evidence rule?

The final written version of a deal is more reliable than anything or written earlier

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