Contracts – Assignment Writing – Flashcards
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What 7 areas should you consider when approaching a contracts question?
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1) Formation 2) Interpretation 3) Third party issues 4) Performance 5) Breach 6) Defenses 7) Remedies
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What law applies?
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Rule: Generally, contracts are governed by the common law. However, Article 2 of the Uniform Commercial Code (UCC) governs transactions and contracts for the sale of goods. When article 2 and the common law conflict over an issue regarding the sale of goods, Article 2 governs.
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Define "Good, sale & Merchant under the UCC.
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Goods: Under UCC 2-103, a good is anything other than money, that is a movable, tangible item. Sale: under UCC 2-106, a sale is the present or future transferring of title from the seller to the buyer in exchange for a price. Merchant: Under UCC 2-104, a merchant is a person who regularly deals in goods and represents herself as having a skill or knowledge particular to dealing in goods of the kind.
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Define 3 types of contracts (Classified by formation)
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Express Contract: An agreement in which mutual assent is manifested by words, either oral or written. Implied Contract (Implied in Fact Contract): An agreement in which mutual assent is manifested by conduct. Quasi-Contract (Implied in Law Contract): An obligation imposed by a court to avoid unjust enrichment. Not a real contract, but a remedy.
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What is unilateral contract?
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A unilateral contract is a contract in which a promise (by the offeror) is exchanged for an act (by the offeree). Note: 1) Unilateral contracts generally arise in two circumstances: (1) the offeror indicates that performance is the only manner of acceptance, OR (2) an offer is made to the public that clearly anticipates acceptance by performance. * The offeror's obligation to perform does not arise until completion of performance by the offeree. *The offeree's failure to perform does not a breach because acceptance doesn't occur unti complete performance has been rendered. * the offeror mayy not revoke an offer under a unilteral contract once performance has begun.
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What is a bilateral contract?
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A bilateral contract is a contract in which a promise is exchanged for a promise.
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Step 1: Formation of contracts: Who are the primary parties in a contract?
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Offeror - person who makes the offer Offeree - person potentially accepting the offer
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What is needed to show a valid contract?
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1) offer 2) acceptance 3) consideration
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What is mutual assent?
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Mutual assent is the agreement by the offeror and offeree to the same terms and their intent to be bound by the agreed upon terms. Rule: to form a valid contract, mutual assent must be present.
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What is an offer?
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An offer is a manifestation of the offeror's present intent to enter into a contract and be contractually bound upon acceptance of the offer. Rule: an offer creates in the offeree the power to form a contract by accepting the offer.
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List 5 examples of communications that are NOT offers.
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1) Invitiations to submit a bid 2) Price estimates 3) Written memos of preliminary negotiations 4) opinions, hopes, jokes, or expectations about future results 5) advertisements - Exception: ads that contain specific wording such as first come first served are treated as offers.
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When can an offeree accept an offer?
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Rule: an offer may be accepted as long as the offer has not been terminated. Upon termination of the offer, the offerees power to accept also is terminated.
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List 5 ways a revocable offer can be terminated by an act of one of the parties:
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1) express rejection of the offer by offeree 2) counteroffers by the offeree 3) expiration of the offer (lapse of time) 4) revocation of the offer by offeror 5) death or insanity of either offeree or offeror
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Termination of an offer: Express Rejection
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Generally, an offer will terminate upon the offeror's receipt of the offeree's rejection.
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Termination of an offer: Counteroffer
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An offer will terminate upon the offeror's receipt of a counteroffer by the offeree. The counteroffer is treated as a rejection of the offer and an offer of new terms to the original offeror (who becomes the offeree).
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Termination of an offer: Expiration/ Lapse of time
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Rule: An offer will terminate if the offeree fails to accept the offer within: 1) the time specified, or 2) a reasonable time, if no time is specified. If an offer is made person to person, the offer will remail valid only for the duration the conversation exists unless a party can provide evidence of the intent to keep the offer open.
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Termination of an offer: Revocation
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An offer will terminate if the offeror 1) communicates the revocation of the offer to the offeree, OR 2) acts inconsistently with a continued willingness to enter into a contract and the offeree learns of the offeror's acts.
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Offeror's power to revoke
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Rule: Generally, offers not supported by consideration or detrimentally relied upon by the offeree can be revoked at will by the offeror.
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When will an offer become irrevocable?
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An offer may NOT be revoked if: 1) the offer has been accepted by the offeree, 2) the offer is made as part of an option contract 3) the offer meets the requirements of the firm offer rule 4) the offeree has detrimentally and forseeably relied on the offer, OR 5) the offeree has begun performance in a unilateral contract.
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What is an option contract?
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An option contract is created when the offeree gives consideration for the offeror's promise not to revoke an offer for a period of time. * Under common law, the offeror must actually receive something in consideration for keeping the offer open * Under the 2nd restatement, the offeror need not actually receive something in consideration if the offeror acknowledges receipt of the consideration.
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What is the Merchant Firm Offer Rule?
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Under UCC 2-205, an offer to by or sell goods may not be revoked during the time promised if the offer was made by a merchant, was made in a signed writing, and promises to hold the offer open for a period of time. (not more than 3 months).
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Acceptance:
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Acceptance is the unequivocal assent to the terms and conditions of the offer. Acceptance depends on the type of contract (unilateral or bilateral)
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What is required for valid acceptance of a bilateral contract?
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Common law: (Mirror Image Rule): the terms of the acceptance must those of the original offer, anything else is considered a rejection and counteroffer. Under UCC 2-207, different or additional terms will not defeat formation of the contract, unless the offeree expressly makes acceptance conditional on the offeror's agreement to the different or additional terms.
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What is the effect of additional terms in an acceptance?
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Under UCC 2-207, the effect of additional terms depends on the status of the parties to the transaction. If one party is a non merchant, the offeror's terms control, and the additional terms are treated as proposals for modification of the contract on the offeror's terms. If both parties are merchants, the additional terms will be included as partof the contract uless the offer expressly limits acceptance to the terms of the offer, the additional terms signficantly alter the terms of the offer, or the offeror objects to the additional terms within a reasonable period.
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What is the effect of different terms in an acceptance
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The U.C.C. does not discuss the effect of different terms, and courts are split on the treatement of different terms in the sale of goods contracts. Majority rule: (Knockout Rule) conflicting terms are deleted and replaced with the UCC gap filler terms. Minority rule: different terms are treatedlike additional terms and the same rules apply.
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Who bears the risk of mistake in the communication of an offer?
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Rule: The offeror bears the risk of mistakes made in the communication of an offer. Upon acceptance by the offeree, the terms as received by the offeree will control. Exception: if the offeree knew or should have known that the terms of the offer were inconsistent with the terms intended by the offeror, the offerees acceptance will not form a contract based on those terms. Note: A minor mistake in the communication of an offer is referred to as a scribners error.
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What is the effect of performance if the parties writings failed to create a contract?
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Rule: If the parties fail to create a contract but begin performance as though a valid contract exists, the UCC recognizes a valid contract consisting of all terms on which their writings agree. Supplementary terms are supplied by the UCC where needed.
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By what standard is acceptance analyzed?
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Acceptance is judged by an objective standard
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How should acceptance be communicated?
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Rule: Acceptance may be communicated by any reasonable method, unless the offeror expresly limits acceptance to a particular method. The acceptance must provide the offeror with notice that his offer has been accepted.
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What happens if the offeree is silent after receiving an offer?
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Rule: An offeree's silence will not result in acceptance of the offer, unles the offer spefically states that silence will mean acceptance. An Offeree's silence for more than a reasonable time will result in termination of the offer.
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What if the offer does not specifiy the method of acceptance but only that the goods be shipped?
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Rule: Under UCC 2-206, an offer that fails to specifiy the method of acceptance may be accepted by 1) a prompt promise to ship the goods, 2) prompt shipment of conforming goods, or 3) prompt shipment of non-conforming goods.
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Acceptance of an offer: Timing
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Rule: Generally, acceptance is effective at the moment the communication of acceptance is sent. Exception: Acceptance will not be effective at the moment sent in the following circumstances: 1) If the offer stipulates acceptance will not be effective until received, the terms of the offer control. 2) in the case of an option contract, acceptance will not be effective until receipt by the offeror. 3) if the offeree sends a rejection before sending an acceptance, which ever the offeror receives first is effective. Bar Tip: as a general rule, acceptance is effective when sent, rejection is effective when received.
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Acceptance of an offer: The mailbox rule
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Under the mailbox rule, an acceptance is effective when sent. Exception: If the offeree sends both a rejection and an acceptance: 1) and the acceptance is sent first, the acceptance is effective at dispatch and the later -sent rejection is ineffective, regardless of the order of the two was received, unless the offeror received the rejection first and detrimentally relied on it. 2) and the rejection is sent first: The mailbox rule does not apply, and whichever arrives first is effective. If the rejection is received first, the acceptance acts as a new offer.
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Mailbox rule: Improper addressing or lost in transit
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Improperly addressed: If the acceptance is sent to the wrong address, the acceptance will be valid upon dispatch if the acceptance is received within the time it would have taken a properly addressed acceptance to be delivered. Lost in transit: If the acceptance is sent to the correct address but lost in transit, the acceptance remains valid upon dispatch. However, courts may discharge the Offeror's contractual duties if justice so requires.
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Consideration
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Definition: Consideration is a bargained for exchange between parties in which each party incures a legal detriment. Rule: To be enforceable, a promise must be supported by consideration. The consideration required depends on the type of contract: 1) bilateral contract: The parties' exchange of promises fulfills the bargained for exchange requirement. 2) unilateral contract: the exchange of an act for a promise fulfills the bargained for exchange requirement.
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Consideration- is it required to modify a contract?
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Common law: Additional consideration is required to modify a contract. UCC: No additional consideration is required if the modification was made in good faith.
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Consideration: Can a promise given in exchange for an act already completed satisfy the bargained for exchange requirement?
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Rule: A promise given in exchange for an act already completed will not satisfy the bargained for exchange requirement. Exception: A new promise to pay will satisfy the bargained for exchange requirement if the completed act was performed at the promisor's request.
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Consideration: Legal Detriment
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Rule: A legal detriment has been incurred when a party: 1) engages in an act that the party had no previous obligation to perform, OR 2) refrains from engaging in an act the party may legally engage in.
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Consideration: Preexisting legal duty rule
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Rule: Generally, performing or promising to perform an act one has a preexisting duty to perform does not constitute legal detriment.
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Consideration: Mutuality Requirement & Illusory promises
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Rule: Both parties must be bound to perform by the terms of the contract. If only one party is bound, the promise will be deemed illusory and not enforced.
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Consideration: Can a promise without consideration ever be enforced at common law?
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Rule: Under common law, a promise made without consideration may nonetheless be enforceable if: 1) the promise induced the promisee to detrimentally rely on the promise (promisorry estoppel) 2) A new promise is made in writing to pay a past debt 3) a new promise is made after an original promise that was voidable due to mistake, misrepresentation, or undue influence, OR 4) the original promise is voidable due to the promisor's incapacity, and a new promise is made by the promisor after gaining capacity.
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Can a promise without consideration ever be enforced under the UCC?
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Rule: Under the UCC, a promise made regarding the sale of goods unsupported by consideration may nonetheless be enforceable if the promise: (1) is a contract modification, (2) is the release of a claim in a signed writing, or (3) is a written promise by a merchant not to revoke an offer.
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Contracts enforceable without consideration: Promissory estoppel
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Rule: Promissory estoppel may substitute for consideration and make a contract enforceable if: (1) a promisor makes a promise, (2) the promise reasonably induces action or forbearance by the promisee (3)The action or forbearance worked to the detriment of the promisee, AND (4) the action or forbearance was reasonably foreseeable by the promisor.
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Statute of Frauds
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Rule: If an agreement falls within the Statute of Frauds, the agreement must: 1) be in writing 2) signed by the party charged or is agent 3) specify the essential terms of the contract with reasonable certainty under common law 4) specify the quantity of goods that are the subject of the contract under the UCC.
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What essential terms must be in writing to satisfy the statute of frauds under common law?
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Under common law, a contract that falls within the SOF must identify: 1) the name of the contracting parties 2) the contract's subject matter 3) the terms and conditions of the agreement, AND 4) the consideration offered
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What is the UCC exception to the statute of frauds signature requirement?
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Rule: In a contract, for the sale of goods between merchants, an oral agreement may be enforced if: 1) the merchant's enter into an oral contract 2) one merchant sends a signed writing memoralizing the agreement, 3) the other merchant receives the writing and knows or should know of the writing's content, AND 4) the recipient merchant fails to object in writing within 10 days of receipt
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Statute of Frauds: What types of contracts fall within the statute of frauds?
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1) marital contracts 2) service agreements not able to be completed within 1 year 3) contracts for the sale of goods for $500 or more 4) contracts for the lease of goods for $1000 or more 5) contracts for the sale of personal property for more than $5000 6) contracts for the sale of land or interest in land 7) contracts for the lease of real property for more than one year 8) an agreement to answer for the debt of another, and 9) agreementsmade in consideration of marriage
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When will a contract for the sale of goods for $500 or more fall within an exception to the statute of frauds?
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Rule: an agreement for the sale of goods for $500 or more does not have to comply with the SOF if: 1) the goods are unique 2) Partial payment for the goods has been made 3) part of the goods have been received or accepted, OR 4) the party claiming the statute of frauds defense admits to the contracts existence in a court document
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When will a land sale agreement fall within an exception to the statute of frauds?
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Rule: Partial performance on a contract for the sale of land will remove the contract from the Statute of Frauds if the party claiming contractual rights can show that she took possession of the land, and made valuable improvements to the land.
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When will a service contract fall within an exception to the statute of frauds?
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Full performance of a service contract by either party removes the contract from the statute of frauds.
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Statute of frauds: Exception due to promissory estoppel
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Rule: If strict compliance with the statute of frauds would result in injustice, courts may use promissory estoppel to remove the contract from the statute.
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Statute of Frauds: Oral Rescissions:
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Common law: A split of authority exists regarding the validity of an oral rescission of a contract that falls within the statute of frauds: 1) Traditional view: an oral rescission of a contract that fell within the statute of frauds was invalid 2) Modern Approach: an oral rescission is valid if one or both parties have relied on such rescission.
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Statute of frauds: Oral Rescission: UCC
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Under UCC 2-209, oral rescissions are valid unless a valid contractual provision forbids oral rescission. Whether a provision forbidding oral rescissios is valid depends upon the status of the contracting parties: 1) if the contract is between a merchant and a non merchant: the provision must be separately signed by the non merchant to be valid. 2) if the contract is between two merchants: The provision need not be separately signed to be valid.
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Statute of frauds: Oral modifications
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Rule: If the contract as changed by an oral modification brings the contract within the statute of frauds, the oral modification will not be valid, and the original unmodified contract remains valid.
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Statute of frauds: Equal dignity rule
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Definition: The equal dignitity rule requires that a document authorizing an agent to represent a person in a contractual matter be executed with the same formalities required for the contract in which the agent will represent the individual. Rule: If an agreement in which an individual is represented by an agent falls within the statute of frauds, the contract authorizing the agent's representation must also meet the statute of frauds.
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Step 2: Interpretation of terms: Parol Evidence Rule
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Definition: The parol evidence rule limits admissibility of evidence of prior or contemporaneous negotiations or agreements when interpreting the terms of written contracts. Rule: Under the Parol Evidence Rule, all previous agreements between contracting parties are considered merged into the final written agreement. Whether extrinsic evidence will be admissible to assist in the interpretation of a contract depends upon the extent to which the contract is intended as a final representation of the parties' agreement: 1) complete integration: Extrinsic evidence that contradicts or supplements the terms of the contract is not admissible. 2) Partial integration: Extrinsic evidence that contradicts the terms of the contract is not admissible. Evidence that suppliments the terms of the contract is admissible.
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Parol Evidence Rule: Partial and Complete integration
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Complete integration: A complete integration occurs where the parties to the contract intended the final document to include all of the details of their agreement. Partial integration: A partial integration occurs where the parties to the contract intend the final documents to include some but not all of the details of their agreement.
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When may evidence be admitted as an exception to the parol evidence rule?
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Rule: Extrinsic evidence of prior or contemporaneous negotiations or agreements may be offered as an exception to the parol evidence rule to: 1) determine the parties' intent regarding ambiguous terms, 2) determine whether formation defects exists 3) Establish the existence of a condition precedent to a contract, 4) establish the existence of collateral agreements supported by separate consideration. 5) Establish that integration is partial or complete.
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Interpretation of terms: What do courts look to when interpreting the terms of a contract?
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Rule: To interpret the terms of a contract, courts look to 1) the express terms of the contract; (2) the course of performance; (3) Course of dealing, and (4) custom and usage.
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Interpretation of terms: Missing terms
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Where a term is missing, a reasonable term may be supplied by the court if the term is consistent the parties' intent. Courts often look to industry practice to provide a reasonable term. UCC: The UCC provides gap fillers if hte contract fails to specifiy the: 1) price terms 2) time for performance 3) terms of delivery 4) Place of delivery
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Missing terms: Place of delivery
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Rule: if a place of delivery is not agreed upon in the contract, the place of delivery will be provided by the UCC: Generally, the place of delivery is the seller's place of business, or residence if no place of business. If the goods are held by a third party, the place of delivery is the location of the goods. If the parties have agreed to the shipment of the goods to the buyer, the place of delivery is the address at which the buyer will receive the goods.
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UCC Terms: Implied Warranty of Merchantability
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Rule: By operation of law, contracts for the sale of goods by a merchant include an implied term that ensures the goods are fit to be used for the purpose for which the goods were meant to be used. To determine if goods are fit for ordinary use, courts will look to whether goods: 1) are consistent in quality within each unit and among all units. 2) conform to any promises or affirmation smade on the container or label, 3) are adequately packaged and labeled, AND 4) are commonly accepted in the market to which they were introduced.
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UCC Terms: Implied warranty of fitness for a particular use / purpose
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Rule: Under UCC 2-315, a sale of goods includes an implied warranty that the goods will be fit for a particular purpose if: 1) The buyer, at the time of the sale, has a particular purpose for which he seeks to purchase the goods 2) the seller, at the time of the sale, knows or should know of the buyer's purpose, AND 3) the buyer relies on the seller's skill or judgment to select goods suitable for such purpose.
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UCC Terms: Express warranty
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Rule: A seller creates an express warranty that goods will conform to the seller's representations if the seller: 1) makes a statement of fact relating to the goods 2) makes a promise relating to the goods 3) provides a description of the goods, OR 4) provides a sample or model of the goods to be delivered.
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UCC Terms: Contractual limitations on warranty liability
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Rule: Under UCC 2-316, implied warranties of fitness can be excluded with language that reasonably calls the buyer's attention to the exclusion of warranties and makes plain that there are no implied warranties.
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Step 3: Contracts Affecting Third Parties: When may a third party have a right or duty under a contract?
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A third party may have or assume a right or duty in four situations: 1) third party beneficiary contracts 2) assignments 3) delegations 4) novations
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Third party beneficiary contracts: Identify the 3 parties involved in third party beneficiary contracts
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Third party beneficiary: The person who is not a party to the contract, but receives a benefit from the agreement. Promisor: The person who makes the promise that benefits the third party Promisee: The person who provides consideration in return for the promise that benefits the third party.
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Third party beneficiary contract: When may a third party beneficiary have a right of enforcement.
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Rule: For a third party beneficiary to have the right of enforcement, the beneficiary must be an intended beneficiary. The promisor and promisee must have intended through words or acts to create legally enforceable rights in the third party.
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Third party beneficiary contracts: Intended and incidental beneficiaries
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Intended Beneficiary: A person who is intended to benefit from a contract. Example: Creditor beneficiary or Donee Beneficiary.
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Third party beneficiary contracts: When does a third party beneficiary acquire rights contractually?
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Rule: A third party beneficiary acquires contractual rights when her rights have vested. A third party beneficiary's rights vest when the beneficiary: 1) accepts the benefits from the contract 2) Brings suit to enforce the promise made in the contract 3) OR, alters her position in justifiable reliance on the promise
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Third party beneficiary contracts: What happens if a promisor fails to perform?
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Rule: If a promisor fails to perform a promise to an intended third party beneficiary, the recourse available depends on the beneficiary's status: 1) creditor beneficiary: can sue the promisor, promisee, and the promisee may sue the promisor. 2) Donee beneficiary: can sue the promisor, but "may not" bring suit against the promisee unless the suit is based on detrimental reliance, AND the promisee may bring suit against the promisor for specific performance.
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Identify the 3 parties involved in the assignment of contract rights
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Assignee: The person, not party to the original contract, to whom contract rights are assigned. Assignor: A party t othe original contract who transfers his rights under the contract. Obligor: A party to the original contract who did not transfer his rights under the contract.
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Assignment:
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Definition: An assignment is a transfer of rights or benefits under a contract from one party to another. Rule: Contract rights are assigned when a contract is created by two parties, and one of the parties later transfers her rights under the contract to a third party.
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Assignments: What is required to make a valid assignment.
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Rule: To make a valid assignment, the assignor must manifest an intent to immediately and completely transfer his rights.
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Assignments: What is the difference between an assignment for value and a gratuitous assignment?
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Rule: An assignment for value is irrevocable. A gratuitous assignment is generally revocable.
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Assignments: How may a gratuitous assignment be revoked?
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Rule: A gratuitous assignment may be revoked by 1) the assignor making a subsequent assignment of hte same right 2) the assignors death 3) the assignor's loss of capacity, OR 4) the assignee's or obligor's receipt of notification of revocation
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Assignment: how may a gratuitous assignment become irrevocable
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Rule: A gratuitous assignment will become irrevocable if 1) The assignment is made in a signed writing and delivered by the assignor. 2) The assignment is accompanied by a writing signifying a modicum of ownership over the right assigned. 3) The obligor has performed or begun performance. 4) the assignee obtains a judgment against hte obligor, or 5) the assignee has foreseeably and detrimentally relied on the assignment.
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Assignments: What limitations exist on the assignment of contractual rights?
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Rule: Contractual rights may generally be assigned unless: 1) the assignment would materially alter the obligor's duty, risk, or burden. 2) the assignment would reduce the value or likelihood of performance to the obligor 3) a non assignment provision is included in the contract, or 4) an assignment is prohibited by law.
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Assignments: Who may sue whom?
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Rule: The assignee can sue the obligor, and the obligor may assert any defenses against the assignee that could have been raised against the assignor. Generally, the assignee may sue the assignor only if the assignment was made for consideration.
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Assignments: Successive assignments
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Rule: The ultimate possessor of contractual rights when rights are assigned to be a series of successive assignees depends upon the type of assignment: 1) gratuitous assignments: The last assignee in time holds the right sto the assignment unless a gratuitous assignment to a previous assignee was irrevocable. 2) Assignment for value: the first assignee to whom contract rights are assigned in return for consideration is the rightful owner of the assignment rights.
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Identify the 3 parties involved in the delegation of contract duties
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Delegatee: the person, not a party to the original contract, to whom contractual duties are transferred. Delegator: the party to the original contract who transfers her duties to a third party. Obligee: the party to the original contract who did not transfer her duties under the contract.
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Delegation
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A delegation is a transfer of duties under a contract.
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Delegations: When may a party to a contract delegate duties?
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Rule: A party may delegate the performance of her contractual duties unless: 1) The contract between the original parties prohibits delegations 2) the contract between the original parties prohibits assignments 3) performance of the contractual duties requires special skill, OR 4) delegation would change obligee's expectancy or deprive him of the substantial benefit of the contract.
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Delegations: What is required to delegate duties?
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Rule: To delegate duties under a contract, the delegator must manifest present intent to make a delegation. A delegation need not be in writing.
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Delegations: Who may be held liable if the delegatee does not perform?
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Rule: Generally, a delegator will not be released from liability to the obligee due to a delegation, and a delegatee is not laible for the performance of contractual duties unless he expressly or implicity assumes responsibility for such performance.
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Delegations: Who may sue whom if a delegatee who has accepted responsibility does not perform?
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Rule: If the delegatee assumes responsibility for performance and fails to perform the contractual obligations: 1) the delegator may sue the delegatee 2) the obligee may sue the delegatee, and 3) the obligee may sue the delegator
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Delegations: What is assumed when one party makes a broad assignment of the contract to another party?
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Rule: When one party assigns the "contract" or "all rights under the contract" both an assignment of the rights and a delegation of the duties are presumed, unless contrary language or circumstances exist.
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Novation
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A novation is the replacement of an original party to the contract with a new party, resulting in the creation of a new contract. Rule: A novation requires the assent of both parties to the original contract as wella s teh individual replacing one of the parties. A novation completely releases the replaced party from liability.
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Contracts affecting third parties: What is the difference between an assignment, a delegation, and a novation?
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Assignment: an assignment is the transfer of rights from one party to another. Delegation: a delegation is the transfer of obligations from one party to another. Novation: a novation is the complete substitution of one party for another resulting in the creation of a new contract.
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Step 4- Performance of contract: What should you consider when discussing performance?
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1) has a duty to perform arisen? 2) has the duty to perform been fulfilled? If a duty to perform has arisen and has not been fulfilled, this is a breach based on nonperformance, UNLESS the non performance has been excused.
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When does a duty to perform arise?
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A duty to peform arises if an absolute promise has been made, OR, all of the conditions of a conditional promise have been met or excused.
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How might conditions affect a party's duty to perform?
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Rule: Before either party to a contract can require the other party to perform under the contract, the party must fulfill all conditions precedent that it is obligated to perform and must offer (and be able) to fulfill all conditions concurrent that it is obligated to perform.
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What is the effect of the performance or excuse of a condition?
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A duty of performance for one or both parties becomes absolute when conditions are either performed or excused.
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Conditions precedent, concurrent, and subsequent
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Condition precedent: A condition precedent is a condition that must occur before a duty of performance arises in a party. Conditions concurrent: Conditions concurrent are conditions that are mutually dependent and are expected to be performed at teh same time. Conditions subsequent: a condition susbsequent is one that, if it occurs, will terminate an existing duty of performance.
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Express, Implied, and Constructive Conditions
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Express conditions: Conditions expressly stated in the contract whose validity depends upon the manifestation of mutual assent to the condition. Implied conditions: conditions that may be inferred from evidence of the parties intentions. Constructive conditions: conditions that may be interpreted from a contract by teh court or imposed by law, without regard to the parties' manifestations, to ensure equity is achieved.
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List 8 ways that conditions can be excused
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1) Actual breach 2) Substantial performance 3) Divisibility of contract 4) Wrongful prevention 5) Waiver 6) Election 7) Impossibility of Performance 8) Estoppel
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Excuse of conditions: Actual breach
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Rule: A material breach by one party excuses the other party's duty to fulfill a condition.
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Excuse of conditions: Substantial performance
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Rule: If a party has provided near complete performance of its duty to perform a condition, a minor breach of a condition may be excused to avoid forfeiture.
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Excuse of conditions: Divisibility of contract
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Common law: If a party performs on one unit of a divisible contract but fails to perform on the rest of the units, he is entitled to return performance on the equivalent for the performed unit. UCC: Under UCC 2-612, an installmant contract is one that authorizes or requires delivery in separate installments. The buyer may declare the total breach of contract only if performance on the individual unit is defective to such an extent as to substantially impaire the value of the entire contract.
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Excuse of conditions: Wrongful prevention
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Rule: If one party wrongfully prevents another or hinders another party's performance, and such performance was a condition of the wrongdoer-party's duty arising, the condition is excused.
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Excuse of conditions: Waiver
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Rule: Waiver of a non-material condition before performance is due will excuse performance of the condition.
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Excuse of conditions: Election
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Rule: A party's election to continue performance after a condition has failed acts as a waiver of the condition.
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Excuse of conditions: Impossibility of performance
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Rule: Impossibility of performance of a material condition excuses performance of the condition.
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Excuse of conditions: Estoppel
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Rule: Conditions may be excused where equity demands.
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Performance
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Rule: A party's obligations under a contract are fulfilled by performance occording to the terms and requirements of the contract. Full performance of contractual obligations discharges a party's duties.
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Performance: Timing of performance
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Rule: Unless the contract specifies otherwise, promises capable of simultaneous performance are due at the same time, and each is constructively conditioned on performance of the other.
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Performance under the UCC: Seller's obligation to tender delivery of goods
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Rule: Under the UCC 2-503, a seller's obligation to tender delivery of goods requires that: 1) the seller must make conforming goods available to the buyer 2) the seller must give buyer reasonable notice to enable the buyer to take delivery. 3) the goods must be tendered for delivery at a reasonable hour and kept available for a reasonable period for the buyer to take possession, and 4) all goods called for in the contract must be tendered in a single delivery.
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Performance under the UCC: Perfect Tender Rule
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Rule: In a contract for the sale of goods, if the goods fail to conform exactly to the description in the contract, the buyer may: 1) accept the entire shipment, 2) reject the entire shipment 3) Accept some and reject some of the goods
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Performance under the UCC: Seller's right to cure
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Rule: A seller may cure a defect in goods after the buyer rejects delivery if: 1) the time for performance has not yet expired 2) the seller notifies the buyer of the sellers intention to cure, and 3) the seller repairs, adjusts, or replaces the nonconforming goods within the time for peformance specified in the contract
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Performance under the UCC: Installment Sales Contract
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Definition: An installment sales contract is a contract that requires or authorizes delivery in two or more separate lots to be accepted and paid for separately. Rule1: The buyer may reject an installment only if nonconformity substantially impairs the value of the installment and cannot be cured. Rule2: The entire contract is breached only if one or more nonconforming installments substantially impairs the value of the entire contract. Rule3: If the buyer subsequently accepts a nonconforming installment, the contract is reinstated.
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Performance under the UCC: Right of inspection
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Rule: Upon receipt of the goods, the buyer must be given the opportunity to inspect the goods as a condition precedent to the seller's right to enforce payment under the contract.
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Performance under the UCC: Acceptance of goods
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Rule: A buyer may accept delivery of goods by: 1) Express acceptance 2) Payment,(Payment without an opportunity to inpsect does NOT manifest acceptance) 3) or Implied acceptance
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Performance under the UCC: Revocation of acceptance of goods
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Rule: Generally, a buyer cannot reject goods after accepting delivery. However, a buyer can revoke his acceptance of nonconforming goods if: 1) the nonconformity substantially impairs the value of the goods 2) They buyer's ignorance was excusable, or the buyer reasonably believed the nonconformity would be cured, AND 3) the buyer notifies the seller within a reasonable time after discovery of the nonconformity.
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Performance under the UCC: Seller's Delivery Obligations
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Rule: If the parties have agreed to shipment of goods as performance of seller's delivery obligation, the seller's fulfillment of her obligation to tender depends upon the type of contract: 1. Shipment contracts: FOB (Sellers city): The seller's delivery obligation is fulfilled when the seller delivers the godos to a common carrier, makes reasonable arrangements for the transport and delivery of the goods, delivers any documents of title needed for the buyer to take possession of the goods from teh carrier AND notifies the buyer that shipment has been made. 2. Destination Contracts: FOB (Buyers city): Seller's delivery obligation is fulfilled when the goods arrive at the agreed upon destination.
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Performance under the UCC: Substitution of carriers
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Rule: If through no fault of either party the agreed upon manner of delivery becomes impracticable or is unavailable, the seller's use of a commercially reasonable substitute will constitute sufficient tender.
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Performance under the UCC: Risk of loss
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Rule: If a contract provides for the shipment of goods by the seller, whether the buyer or seller bears the risk of loss depends on the contract type: 1) shipment contract: FOB (seller's city): the risk of loos passes to the buyer when the seller delivers the goods to the carrier. 2) Delivery contract FOB (buyers city): the risk of loos passes to the buyer when the goods are presented at the destination so that the buyer can take delivery of them
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Step 5: Breach of contract: BREACH
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Common law: the nonperformance of a contractual duty that has become due constitutes breach. UCC: Under the UCC, a breach occurs if the: 1) seller offers non-conforming goods, 2) buyer wrongfully rejects goods 3) buyer wrongfully revokes acceptance of goods, OR 4) buyer fails to make payment when due. *Anticipatory repudiation is considered a breach under common law and the UCC.
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Material and Minor Breach
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Material Breach: if a party materially breaches the contract and fails to cure, the non breaching party may cancel the contract and sue for damages, OR continue performance under the contract and sue for partial damages. Minor breach: if the breach is not material, the non breaching party may sue for partial damages, but may not cancel the contract. Note: a minor breach coupled with anticipatory repudiation, is treated as a material breach.
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How do you determine if a breach is material or minor?
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Rule: To determine if a breach is material or minor, courts look to: 1) the degree to which the non-breaching party has been deprived of a reasonably expected benefit, 2) the likelihood that the breaching party will cure his failure and perform the remainder of the contract, 3) the adequacy of compensation for damages to the injured party, 4) the extent of performance by the breaching party, and 5) whether the breaching party has acted in good faith in trying to perform.
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Breach: Timeliness of performance
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Rule: if performance is rendered within a reasonable time, failure to perform by the date or time expressed in the contract will generally not constitute a material breach. Exception: If timely performance is essential and its necessity is expressed in the contract, failure to render timely performance will constitute a material breach.
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Anticipatory Breach: Anticipatory Repudiation
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Definition: A repudiation of contractual duties before the time performance is due. Example: flat out stating, "I am not going to perform when called to do so" OR Example: engaging in a voluntary affirmative act that makes her unable to perform her contractual duties (implied repudiation). Keep in mind that since the repudiation must occur before the time when performance is due, anticipatory breach is not possible in unilateral or bilateral contracts where performance has already begun.
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Anticipatory Breach
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Rule: An express, unequivocal statement of an intention not to perform an immediate action for breach. Common Law: Anticipatory repudiation by one party entitles the nonrepudiating party to sue for breach and have his remaining obligations discharged. UCC: In the case of anticipatory repudiation that will substantially impair the value of the contract, the non-repudiating party may provide the repudiating party a reasonable amount of time to perform, sue for breach, and/or suspend his own performance.
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Can a repudiation be retracted once communicated?
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Common law: can be retracted at any time before the non repudiating party detrimentally relies on or accepts the repudiation. UCC: Can be retracted at any time before performance is due unless the non repudiating party detrimentally relies on or accepts the repudiation.
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Step 6: Defenses: Void, Voidable, and unenforceable contracts
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Void contract: A contract that is void from inception and has no legal effect: (1) the contract cannot be enforced against either party and rights cannot be transferred. Voidable contract: a contract that a party may choose to enforce or not to enforce the terms of the contract: (1) the innocent party may enforce the contract, but the contract cannot be enforced against the innocent party; and (2) rights ARE transferrable.
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What is the difference between a real defense and a personal defense?
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Real defense: a real defense is a defense that goes to the validity of the contract itself and renders a contract void. Personal defense: a personal defense is a defense that will render voidable the obligations of the party asserting the defense.
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List 11 defenses to formation or enforcement
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1) illegality 2) fraud 3) misrepresentation 4) Duress 5) undue influence 6) lack of capacity 7) unconscionability 8) statute of frauds 9) absence of consideration 10) Mistake 11) ambiguity
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Defense to formation/enforcement: Illegality
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Rule: Contracts containing illegalities may be rendered void or unenforceable: 1) If the subject matter of a contract was illegal prior to formation, the contract is void. (by operation of law) 2) if the subject matter of a contract is declared illegal after formation of the contract, the contract is unenforceable and both parties are excused from performance. exception: if the subject matter of the contract is or has become illegal and performance has begun, courts will allow for recover in quasi contract if the illegality is not one involving moral turpitude.
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Defense to formation/enforcement: Fraud in the factum
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Definition: Fraud in the factum occurs when a party is tricked into entering a contract without understanding that she is entering a contract. Rule: If fraud in the factum is found, the contract is void. **This is a form of misrepresentation**
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Defense to formation / Enforcement: Misrepresentation
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Definition: Misrepresentation exists when one party makes an assertion that is false and the other party justifiably relies upon the false assertion. Rule: the non asserting party may void the contract if the false assertion was made intentionally with the goal of inducing the party to rely upon it, or made unintentionally but concerned a material issue that was likely to make the non asserting party agree to enter into a contract.
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Defense to formation/Enforcement: Duress
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Duress exists when coercion was used to persuade a party to enter into a contract or to modify an existing contract. Physical Duress: the act or threat of physically harming the victim or the victims loved ones. Economic Duress: the act or threat of harming the victim's economic or business interest. Rule: if the duress was sufficient to force the hand of the coerced party, the aggreived party may void the contract.
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Defense to formation/ Enforcement: Undue Influence
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Rule: a party may void a contract based on undue influence if the wrongdoer party took advantage of the aggrieved party's position of weakness, or breached a fiduciary position.
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Defense to formation /Enforcement: Lack of Capacity- Infants
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Rule: Contracts entered into by a minor can be voided by the underage party, even if the minor misrepresented her age to the contracting party. If a minor represents her age, the other party can raise fraud as a defense. Note: After attaining the age of majority, the minor must disaffirm the contract within a reasonable time period, or else be bound by her contractual obligations.
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Defense to formation / Enforcement: Lack of capacity - Mental Incapacity
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Rule: A party who suffers from a mental illness or defect may void the contract if, at the time of entering the contract, her mental impairment prevented her from understanding the nature and consequences of the transaction. Exception: The party may not void the contract if 1) the terms of the contract are fair, 2) the other party had no knowledge of the incapacity, and 3) enforcing the contract would produce an equitable result.
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Defense to formation/ Enforcement: Lack of capacity - intoxication
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Rule: a party who was intoxicated when the contract was made may void the contract if the other party knew or should have known that the intoxicated party was unable to understand the nature and consequences of the transaction.
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Defense to formation enforcement: Lack of capacity (Necessaries Doctrine)
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Rule: Under the Necessaries doctrine, a party that lacks the capacity to enter into a contract will beheld liable for the reasonable market value of the necessaries provided under the contract.
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Defense to formation /enforcement: Unconscionability
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Rule: A contract may be unenforceable if the terms of the contract are so unfair that enforcement would be unconscionable.
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Defense to formation / Enforcement: Statute of frauds
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Rule: Failure to mee the statute of frauds requirements renders a contract unenforceable. If a contract falls within the SOF, but fails to satisfy it, either party may raise the statute of frauds as a defense.
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Defense to formation / Enforcement: Absence of consideration
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Rule: If the parties to the cotnract do not egange in a bargained for exchange, the contract is void.
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Defense to formation / Enforcement: Mistake
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Definition: A mistake is an incorrect belief as to facts that exist at the time the contract is made. Mistakes may be mutual or unilateral.
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Defense to formation/ Enforcement: Mutual Mistake
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Rule: If both parties are mistaken, the adversely affected party may void a contract if: The mistake concerns a basic assumption on which the contract was made, the mistake materially affects the agreement, and, the adversely affected party did not bear the risk under the contract the party was not intentionally or consciously ignorant of reasonably apparent facts.
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Defense to formation / Enforcement: Unilateral Mistake
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Rule: The effect of a unilateral mistake depends on whether the non mistaken party knew or should have known the mistake. If one party is mistaken and the other party: 1) is or should be aware of the mistake, the mistaken party may void the contract. 2) did not know of the mistake, the mistaken party may void the contract if: a) enforcement would be unconscionable, b) the msitake is of substantial nature, c) the mistake is due to a clerical or computational error, AND d) voiding the contract would not cause substantial hardship to the non mistaken party.
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Defense to formation / Enforcement: When is mistake NOT available as a defense to formation?
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Rule: Mistake may not be used as a defense to formation if: 1) the mistaken party's gross negligence or failure to act in good faith was the cause of the mistake, 2) the party seeking to void the contract assumed the risk of the mistake, or 3) the party seeking to void the contract failed to read the contract.
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Defense to formation / Enforcement: Ambiguity
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Rule: Whether the inclusion of ambiguous material terms in a contract can render the contract void depends on the parties subjective intent. 1) if neither or both parties were aware of the ambiguity a contract will not be formed unless both parties intended the same meaning. 2) if one party was aware of the ambiguity, a contract is formed based on the mistaken party's reasonable understanding of the term.
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List 10 ways non performance can be excused.
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1) Impossibility 2) Impracticability 3) Frustration of purpose 4) Rescission 5) Substituted Contract 6) Accord and satisfaction 7) Novation 8) Lapse of time 9) Release 10) Running of the statute of limitations
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Excused nonperformance: Impossibility
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Rule: if circumstances arise after a contract is formed that makes a party's performance impossible, she is excused from performance of her contractual duties.
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Excused nonperformance: Impracticability
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Rule: If circumstances arise after a contract is formed that make a party's performance impracticable, he is excused from performing his contractual duties. To prove performance is impracticable, a party must show, 1) an unanticipated event arose that makes performance unreasonably difficult, 2) the party seeking relief is not at fault for the occurrence, and 3) the party seeking relief did not assume the risk of the event occurring.
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Excused nonperformance: Frustration of purpose
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Rule: If circumstances arise after a contract is formed that substantially frustrate a party's purpose, she is excused from performance of her contractual duties if the supervening event 1) was not reasonably foreseeable when the contract was formed, and 2) destroys or nearly destroys the purpose of the contract.
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Excused nonperformance: Rescission
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Rule: Performance will be excused if the parties mutually agree to rescind the contract. A contract may be rescinded if: 1) both parties have outstanding duties to perform under the contract, and 2) vested rights of third party beneficiaries (if any) will not be affected. bar tip: if one party has already performed, look to release rather than rescind. Unilateral rescissions are not valid unless based on an adequate legal ground (mistake, breach etc)
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How can parties rescind a contract?
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Common Law: A rescission may be oral or in writing unless the contract falls within the statute of frauds: Traditional view: a rescission had to be in writing if the contract itself fell within the SOF. Modernly: A rescission can be oral or in writing regardless of wehther the contract falls within the SOF. UCC: under UCC 2-209, the rescission must be in writing if the contract expressly requires that rescissions be in writing.
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Excused nonperformance: Substituted contract
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Rule: If the parties to the original contract enter into a subsequent contract that revokes the first contract, all duties under the first contract will be discharged.
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Excused nonperformance: Accord and Satisfaction
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Accord: An accord is an agreement between parties to a contract in which one party agrees to accept the performance stated in the accord in lieu of the performance stated in the contract. Satisfaction: satisfaction is the performance of the accord. Accord: The accord suspends the duties created in the original contract until satisfaction, at which point the duties of both the original contract and the accord are discharged. Because accord is a new contract, it requires consideration. If the accord is breached, the non breaching party may bring suit for breach of the original contract or the accord.
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Excused nonperformance: Novation
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Rule: When a party to the original contract properly relinquishes her rights and duties under the contract through novation, the new party is bound by the terms of the contract and the former party's duties are extinguished.
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Excused nonperformance: lapse of time
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Rule: both parties' duties of performance may be discharged by lapse of time if each party's duty is a condition precedent to the other party's duty to perform and neither party performs.
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Excused nonperformance: Release
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Rule: A party's duty of performance may be discharged by a release: Common law requires the release to be in writing, consideration, and given before or after breach of the duty to perform. UCC: under UCC 1-306, a release must be in writing, no consideration required, and may be given ONLY after the duty to perform has been breached.
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Excused performance: Statute of limitations
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Rule: if the statute of limitations on an action for breach of contract has run out, enforcement of the duty to perform is barred.
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Step 7: Remedies: What 2 theories can a plaintiff sue for breach of contract?
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1) breach of valid contract 2) quasi contract
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Define and state the rule for Quasi Contract
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Defined: a quasi contract is an implied in law contract that is created by an order of the court to avoid unjust enrichment of a party to a transaction. Rule: If a contract fails or is nonexistent, quasi contract relief may be available if the failure or absense of a contract would result in the unjust enrichment of one of the parties.
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What are the remedies for a breach of contract?
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1) legal remedies a. compensatory damages b. liquidated damages 2) equitable remedies a. reformation b. specific performance c. Injunctive relief d. Rescission & Restitution
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Compensatory damages
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Rule: Compensatory damages are awarded to compensate the plaintiff for losses suffered due to the defendants failure to perform.
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What are the 3 methods of measuring compensatory damages?
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1) Expectation interests - profits the nonbreaching party would have received had the contract been performed. 2) Reliance interests: seeks to place the non breaching party in the position it would have been in had the contract never been created. 3) Restitution interests: seeks to compensate the non breaching party for the benefit it conferred upon the breaching party.
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How are compensatory damages "usually" measured?
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Rule: In contract cases, compensatory damages are usually awarded based on the expectation interests. Note: Reliance is used if expectation damages cannot be accurately calculated. Restitution damages will be awarded in most quasi contract claims, and where one party performs before the other breaches.
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Liquidated damages clause: Define and state the rule
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Definition: A liquidated damages clause is a contractual clause that provides for the amount of damages to be recovered in the event of breach by either party. Rule: enforcable if damages were difficult to ascertain at the time of contract formation, and the amount agreed upon was a reasonable estimate of the amount required to compensate for the loss.
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Under the UCC, what are the sellers options if the buyer breaches?
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Rule: If the buyer is the breaching party, the seller may, withhold delivery, sell the goods to another party and recover the difference in profit, or recover compensatory damages.
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Under the UCC, what are the buyers options if the seller breaches?
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Rule:If the seller is the breaching party, the buyer may: reject the nonconforming goods, cancel her order, or recover compensatory damages.
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Duty to mitigate: State the rule
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Rule: The non-breaching party has a duty to mitigate damages. If the non-breaching party does not attempt to mitigate harm, damages will be reduced by the amount that could have been avoided through reasonable efforts to mitigate.
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When will equitable relief be granted?
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Rule: Equitable relief will be granted if the party seeking relief can show: 1) money damages are inadequate, 2) the terms of the contract are specific enough to allow a court to make an order, AND 3) enforcement of the courts order will notg be overly difficult to require significant supervision.
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Reformation: State the rule
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Rule: If a contract fails to reflect the parties agreement, the court may modify the contract to reflect their agreement or the innocent party's understanding of the agreement.
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Specific performance: State the rule
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Rule: If a legal remedy would be inadequate to compensate for losses caused by breach, the non breaching party may obtain specific performance by proving: 1) the contract between the parties is valid, 2) the requesting party has performed (or is preparing to perform) according to the contract's conditions, AND 3) the contract is enforceable against both parties.
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What 3 defenses are available to an action for specific performance?
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1) Unclean hands - Specific performance is denied when the party seeking SP is guilty of a wrong doing in the transaction underlying the suit. 2) laches: unreasonable delay prejudices the suit and thus, can deny SP. 3) Sale to a bona fied purchaser: if the disputed property or subject matter of the contract has been sold to a person who purchased for value and in good faith, an action for specific performance (SP) will be denied.
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Injunctive relief: State the rule
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Rule: If legal remedies are inadequate and specific performance is not possible, a court may order injunctive relief to prevent the breaching party from performing on any contract other than the original contract.
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Rescission: State the rule
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Rule: In the case of a material breach, the non-breaching party may cancel (rescind) the contract and sue for damages. Note: If the non-breaching party has conferred a benefit on the breaching party through partial or full performance of her duties, the non-breaching party will be entitled to restitution.
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Restitution
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Rule: if a party confers a benefit on another party with the belief that a binding contract exists between parties, she may bring suit for restitution of the value of the benefit conferred. To be awarded restitution, the plaintiff must show that: 1) the D received a benefit 2) The benefit enriched the D at the P's expense, AND 3) Allowing the D to retain the b would be unjust
