Contracts

Created by AmeeW 

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Bar Review

Must ask Questions

Is there a valid offer?
Has there been a valid acceptance of the offer?
Is there consideration to support the contract?
Are there any defenses to enforcement of the contract?
Is the obligation/duty of performance due?
Has there been a breach, and what are the available remedies upon breach?

Governing Law

Common Law of contracts applies to contracts for everything BUT the sale of goods, and also supplements the law of sales of goods where Article 2 does not displace it

General Definition

An enforceable promise - requires a manifestation of commitment

Contract - Classified by Formation

a. Express - formed by words of parties (oral or written)
b. Implied - law looks to parties' conduct and circumstances
c. Constructive (Quasi (or Fictional) Contract) -restitution - applying conduct to prevent unjust enrichment

Contract - Classified by Acceptance

a. Bilateral: promise for promise exchange
b. Unilateral: promise for performance exchange

Contract - Classified by Enforceability

a. Void - nullity from its inception (as if it never existed in the eyes of the law)
b. Voidable - option to render the contract unenforceable

Enforceable Contract

In WA, to have an enforceable contract there must be mutual assent (valid offer plus acceptance), consideration, and no defenses.

Valid Offer

An offer is a committed willingness to bargain seeking another's mere assent

Termination by Act of Parties

a. Termination by Offeror - "Revocation": An expression that is clearly inconsistent w/the intent to contract w/the offeree
2 Types:
Direct - Face to Face
Indirect - 3rd party indicates to offeree that offeror no longer wishes to contract
• Revocation Effective When Received
• Generally, offeror can revoke any time prior to acceptance, except
a. Option Contract - offeree paid separate consideration to hold offer open for a period of time
b. Firm Offer (UCC 2-205)
c. Detrimental Reliance
d. Performance Begun (Unilateral)
b. Termination by Offeree:
1) Rejection or Counteroffer: Mirror Image Rule -kills the offer
a. Effective when Received
2) Lapse of Time - stated time in offer or reasonable time (generally - if over 30 days raise issue)

Termination by Operation of Law

a. Death or Insanity of Either Party (if not yet accepted)
b. Destruction of Subject Matter
c. Supervening Illegality - WA Legislature makes illegal before acceptance = terminates offer

Acceptance

Acceptance requires an offeree's manifestation of agreement in the manner invited and the time required

Mirror Image Rule

Acceptance must mirror the terms of the offer exactly. If any term is different it is a rejection/counteroffer.

Acceptance Must be Communicated

Silence is Generally Not Effective
a. Exceptions - Acceptance W/out Communication:
1) Benefit Retained
2) Custom Makes Silent Acceptance Reasonable

Mailbox Rule

Acceptance is effective when sent, not when received.
a. Applies to Non-Instantaneous Communications
b. Exceptions to Mailbox Rule: (generally not tested)
1. Rejection also sent - if rejection arrives 1st = no contract; if acceptance arrives first = contract but formation is upon receipt
2. Option contracts - acceptance is upon receipt
3. Unauthorized means used - acceptance is upon receipt

Consideration

Consideration requires a bargained-for exchange of legal value.
a. Bargains
1) Promise for Promise Exchange
2) Promise for Performance (Act/Forbearance) Exchange
b. No Bargain/Consideration if:
1) Gift
2) Past Considerations - act that occurred in the past that is now recognized w/a gift promise
3) Illusory Promise
WATCH FOR:
a) Satisfaction Clauses - law implies obligation of good faith
b) Output/Requirements Contracts
c) Exclusive Agency Contracts - reasonable efforts
4) Modification: must have separate consideration to be binding
a. Preexisting Legal Duty Rule - no new consideration given if party attempts to bargain for more money to do something she already has legal obligation to do
b. Exceptions
1) New or Different Consideration Offered
2) Honest Dispute over Duty
3) Unforeseen Circumstances Encountered

Consideration - Adequacy

Adequacy of Consideration vs. Nominal Consideration
• Adequacy - Courts won't inquire into - even a new peppercorn will suffice (mere possibility of value is enough)
• Nominal Consideration - won't support a contact

Substitutes for Consideration

If there's no Consideration, is there an Alternative Ground to Enforce the Promise?
1. Promissory Estoppel or Detrimental Reliance
a. Promise
b. Promisor Should Reasonably Expect Promise to Induce Action or Forbearance
c. Action or Forbearance is Induced in Fact
d. Justice Requires Enforcement
2. Modification Under the U.C.C.: requires only good faith; no consideration
3. Promises to Pay Legal Obligation Barred by Law
a. New Promise enforceable if in writing or part performance
4. Material Benefit Received + Subsequent Promise to Pay
5. Restitution Claim - getting paid back for conferring benefit on someone else

Defenses Concerning Formation Defects - Mutual Assent

Absence of Mutual Assent
a. Mistake - Factual error regarding a fundamental matter, which has a material effect on the agreed exchange. Adversely effective party may then rescind the contract, provided that that party did not bear the risk of mistake.
1) Mutual - both parties mistaken = no contract
2) Unilateral - only one party mistaken - that party bears the risk
3) By Intermediary - mistake construed against party who chose her
b. Misrepresentation - An innocent or negligent untrue assertion of fact or omission, renders the contract voidable if material and if induced detrimental reliance.
c. Fraud - A deliberate or intentional lie or omission, renders the contract voidable, if party is deceived to her detriment.
d. Duress
1) Physical - void
2) Economic - An improper or wrongful threat, which leaves no reasonable alternative but to agree, renders the contract voidable by the adversely effected party.
e. Unconscionability - Renders the contract voidable
1) Procedural - absence of meaningful choice in bargaining process
2) Substantive - unreasonably harsh terms
f. Latent Ambiguity/Misunderstanding (not obvious on face of contract, but appears as the context unfolds)
1) If both parties knew or had reason to know of ambiguity, then no contract
2) If neither party knew or had reason to know of ambiguity, then no contract
3) If only one party knew or had reason to know of ambiguity, then there is a contract on innocent party's terms

Defenses to Enforcement - SOF & Illegality

1. SOF - Contracts within the scope of the SOF are not enforceable unless they are in writing
a. Scope MYLEGS
1) Marriage - prenuptials, etc.
2) (within one) Year - contracts which cannot possibly be performed w/in one year
3) Land
4) Executor
5) Goods ($500+)
6) Surety
b. Writing Requirement
1) Identity of Parties
2) Contract's Subject Matter
3) Terms & Conditions of Agreement
4) Consideration Recited
5) Signature of Party to be Charged (or agent)
c. Exceptions
1) Specially Manufactured Goods
2) Written Merchants Confirmation
3) Admissions - if you admit (deposition, pleading, etc.) then lose ability to later argue SOF
4) Part Performance - substitutes for writing - lose ability to argue SOF
5) No Promissory Estoppel Exception in WA - not clear one way or another
2. Illegality/Public Policy - no obligation to do something that is now illegal

Assignment

Transfer of contract right (benefit of contract)
a. Terminology
1) Assignee - one to who right is assigned
2) Assignor - one whom makes the assignment
3) Obligor - one w/duty to perform assigned right
b. What Rights May be Assigned?
1) Generally all
2) Exceptions
a) Prohibited by a contract clause
b) Prohibited by statute or public policy
c) Where assignment subverts parties' reasonable expectations (personal service contracts)
c. Are Assignments Revocable?
1) Consideration paid for assignment makes irrevocable
2) If no consideration paid, then revocable
d. What Suits Permitted?
1) Assignee v. Obligor - Assignee steps into assignor's shoes and may bring any suit assignor could have brought
2) Assignee v. Assignor - Assignor may be liable to assignee as noted above for breach of transfer warranty

Delegation

Transfer of a contract duty (burden of contract)
a. Terminology
1) Delegate - one to whom a duty is delegated
2) Delegator - one who delegates his duty
3) Obligee - one w/right to receive benefit of delegated duty
b. What Duties May be Delegated?
1) Generally All
2) Exception
a) Prohibited by a contract clause
b) Prohibited by a statute or public policy
c) Where assignment subverts parties' reasonable expectations (personal service contracts)
c. What Lawsuits Are Permitted?
1) Obligee v. Delegator - Obligee may sue the delegator for a non-performance or defective performance by the delegate. The delegator is not released unless and until the delegate performs
2) Obligee v. Delegate - Obligee may also sue the delegate directly if delegate has made a promise to perform
3) Delegator v. Delegate - If the delegator is sued, then he may recover any loss from delegate who agreed to perform in his place

Rules of Contract Construction/Interpretation

1. Whole over Parts
2. Written over Typed or Printed
3. Hierarchy of Evidence of Intention
a. Words of Contract Itself - ambiguous words construed against drafting party
b. Course of Performance - installment contracts - under same contract
c. Course of Dealing - prior contracts
d. Trade Custom/Usage of Trade - community norms of which the parties are or should be aware

Parol Evidence Rule

1. A Final Written Expression of Parties' Agreement
2. May Not Be Contradicted
3. By Evidence of Prior Written Agreement or
4. Contemporaneous Oral Agreement

A final writing supersedes prior negotiations and agreements

Matters Outside Scope of Parol Evidence Rule

1. Collateral Agreements - multiple contracts independent of each other
2. Consistent Additional Terms
3. Supplemental Course of Dealing/Trade Custom/Course of Performance
4. Conditions Precedent
5. Consideration
6. Defenses

Context Rule Distinguished - The "Berg" Rule in WA

Extrinsic Evidence admissible to determine Intent and Context surrounding the Formation of the contract

Once extrinsic evidence reveals whether parties' agreement is final, whether it is complete, and whether there is a conflict, then the parol evidence rule is applied as stated above

When is Performance Due

Performance is due when there are no conditions to performance or all conditions have been satisfied or excused.
1. When There Are No Conditions to Performance
a. Type by Timing
1) Precedent - triggers duty of performance - event must come first
2) Subsequent - cuts off duty of performance
3) Concurrent - simultaneous performance
b. Types by Source
1) Express - by words - strictly construed
2) Implies/Constructive - substantial performance is enough
2. OR When Any Unsatisfied Conditions Have Been Excused:
a. Failure to Cooperate
b. Substantial Performance
c. Waiver or Estoppel
d. Impossibility, Impracticability, or Frustration

What events discharge the duty of performance

1. Performance or Tender of Performance (Offer to pay or perform by one who is willing and able to do so)
2. Condition Subsequent - cuts off duty of performance
3. Unforeseen, post-formation changes of circumstances
a. Supervening Illegality - subject matter of contract becomes illegal
b. Impossibility - Nobody could perform
c. Impracticability - Unreasonably/Unduly burdensome
d. Frustration of Purpose - Central purpose of contract is undermined
4. Parties Agreement
a. Rescission - parties exchange mutual promises to end contract
b. Modification - requires new consideration
c. Novation - mutual agreement to substitute a new party to perform an obligation
d. Accord & Satisfaction/Account Stated - agreement of parties to existing obligation to accept a different performance in satisfaction to existing obligation - Account Stated = lumping together several transactions (watch for preexisting duty violations)
5. SOL - time of breach triggers
a. Oral Contracts/Promissory Estoppel - 3yrs
b. Written Contracts - 6yrs

Breach

Any deviation from promised performance, however slight

• Repudiation - clear indication that breach will result
• Retraction - Repudiation may be retracted but only if it hasn't been relied upon and there's still time left until performance is due

Type & Effect of Breach

1. Material - undermines the substantial benefit of the bargain - Have right to suspend own performance obligations and sue for damages
2. Minor - slight deviation from promised performance - No right to suspend, only can sue for damages

Remedies for Breach

If the court finds breach the law will attempt to give Compensatory Damages to the aggrieved party. (compensate non-breacher for economic loss)
a. Standard Measure - Expectation Interest - provides the amount of money that will put the aggrieved party in the same position she would have been in had the contract been performed. Benefit of Bargain Measure
b. But, there are 3 Limitations on recovering Expectation damages they must be reasonable certain, foreseeable and unavoidable (Duty to Mitigate)
1) Certainty - cannot be speculate - must show damages w/reasonable certainty
2) Foreseeability - Generally Foreseeable (anyone would have seen) & Specially Foreseeable (have to made specially foreseeable at time of formation - be chatty - put her on notice of all potential consequences of breach)
3) Avoidability (duty to mitigate) - damages are not collectable if they could have been avoided w/out undue risk, burden, or humiliation
c. Reliance as Fallback Measure - gives the monetary damages of the detriment occurred - puts back where was before contract was made
1) 2 situations where courts often award reliance damages: When expectation measure is uncertain or "speculative" or when promissory estoppel claim asserted

Remedy for Breach - Restitution

Restitution: Quasi-Contractual Relief
a. Elements:
1) Benefit Conferred
2) Conferring Party had Reasonable Expectation of Compensation
3) Benefits Conferred at Express or Implied Request
4) Unjust Enrichment Results

Remedy for Breach - Specific Performance

Specific Performance: Available if:
a. Legal remedy is inadequate
b. Administration of remedy is not unduly burdensome to court
c. Contract terms are certain and definite
3 categories of cases:
i. Real Estate - all land is unique - no amount of $ is adequate
ii. Goods - only if unique and no cover available
iii. Personal Services - not specifically enforceable

Remedy for Breach - Liquidated Damages

Liquidated - "Agreed Damages" - favored in WA if not a "Penalty"
a. Test for Penalty - enforceable if:
1) Reasonable forecast of just compensation
2) For harm that is difficult to measure

Remedy for Breach - Punitive & Nominal Damages

Punitive and Nominal Damages
a. No punitive damages for breach of contract in WA
b. Nominal Damages - breach but minimal loss - court gives nominal damages

Defenses Concerning Formation Defects - Capacity

Absence of Capacity
a. Infancy - (under 18) - Contracts by minors are voidable by the minor, unless for necessities, or unless minor ratifies at age of majority. If married to an adult then treated as an adult. Educational Loans = 16
b. Insanity - Contract is voidable by one who is unable to understand the nature and consequences of the transaction.
c. Intoxication
1) Voluntary - not a defense unless other party knows and takes gross advantage
2) Involuntary - Contract is voidable by one who is unable to understand the nature and consequences of the transaction.

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