Contracts and Sales
"Goods" defined
"Goods" are all things movable at the time they are identified as the goods to be sold under the contract. Includes: most tangible things (e.g., cars, horses, hamburgers). Does not include: the sale of real estate, services (e.g., a health club membership), intangibles (e.g., a patent), or construction contracts.
Consideration substitutes
1) A written promise to satisfy an obligation for which there is a legal defense is enforceable without consideration. E.g., a written agreement to make payment in satisfaction of a debt, the collection of which is barred by the statute of limitations, is enforceable without new consideration. 2) Promissory estoppel or detrimental reliance. Elements: 1. A promise; 2. Reasonable, detrimental, and foreseeable reliance; and 3. Enforcement necessary to prevent injustice. NY: prevailing on a promissory estoppel claim entitles the party to out-of-pocket expenses (reliance damages) rather than expectation damages.
Offer
1) Expression of a promise, undertaking, or commitment 2) with certain and definite essential terms 3) communicated to the offeree Manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and and will conclude it. An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms. The basic test is whether a reasonable person in the position of the offeree would believe that his or her assent would create a contract.
Irrevocable offers: options
1) Options: an contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. An option exists when there is (i) a promise not to revoke (or to keep the offer open, and (ii) the promise is supported by consideration . (option = offer+2)
Exceptions with respect to advertisements and price quotations
1. An advertisement can be a unilateral offer if it is in the nature of a reward. E.g., Carbolic Smoke Ball Co. promises a 100 pound reward to anyone who catches the flu after using its smoke ball as directed. 2. An advertisement can be an offer if it specifies quantity and and expressly indicates who can accept. E.g., Department store advertises: "1 fur coat for $10--first come, first served." 3. A price quotation can be an offer if sent in response to an inquiry.
Elements of Consideration
1. Bargained-for exchange between parties 2. of something that has legal value, i.e, it must constitute a benefit to the promisor or a detriment to the promisee.
Third party beneficiaries: who can sue whom?
1. Beneficiary can recover from promisor 2. Promisee can recover from promisor 3. Beneficiary cannot recover from promisee, except a creditor beneficiary can recover from a promisee on a pre-existing debt. In such a case the third party creditor beneficiary has a choice to recover from the promisor on the contract or the promisee on the pre-existing debt.
Creation of a contract
1. Mutual assent 2. Consideration 3. Defenses
Methods of indirect rejection: conditional acceptance
A conditional acceptance terminates the offer. Look for a response to an offer with the word "accept" followed by one of the following words or phrases: "if," "only if," "provided," "so long as," "but," or "on the condition that." Common law: conditional language results in rejection but creates a counteroffer that may be accepted by conduct. UCC: under Article 2 a conditional acceptance is simply a rejection.
What is a contract?
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.
Methods of indirect rejection: counteroffer
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer but differs in its terms. A counteroffer is both a rejection and a new offer. It terminates the original offer and reverses the roles of the parties. Thus generally where a counteroffer is made there is no express contract unless the counteroffer is accepted. Exceptions: Bargaining: a mere inquiry, i.e., interrogatory language pursuant to bargaining, does not terminate the offer. Look to the parties intent: if the response to an offer is a question and reflects an intent to bargain, it will not terminate the offer. Options: counteroffers do not terminate options.
Quasi-contract liability for necessities
A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care, or shelter, but this is based on quasi-contract law.
Statute of Frauds: transfers of interest in real estate
A promise creating an interest in land must be evidences by a writing. This includes not only agreements for the sale of real property, but also: (i) leases for more than one year; (ii) Easements of more than one year; (iii) Mortgages and most other security leans; (iv) Fixtures; and (v) Minerals (or the like) or structures if they are to be severed by the buyer. Full performance by the seller will take the contract out of the Statute of Frauds. Part performance by the buyer may also remove the contract from the Statute of Frauds. Remember: leases for one year or less need not be in writing.
Statute of Frauds: service contract not capable of being performed within a year from the time of the contract
A promise that by its terms cannot be performed within one year is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case. The date runs from the date of the agreement and not from the date of performance. Even if the contract cannot be performed within a year, full performance by one party will remove it from the Statute. "Capable" can be loosely interpreted as being theoretically possible to perform within a year with unlimited resources. Thus a service contract for the completion of a specific task that does not expressly state a time frame is not within the Statute of Frauds if it can theoretically be completed within a year with unlimited resources. MBE: lifetime contracts are not within the Statute of Frauds. E.g., An employer contracts to hire an employee to work for the employer for the rest of the employee's life. This is not within the Statute of Frauds because the employee could theoretically die within a year. NY: The NY Statute of Frauds includes lifetime contracts. Thus the above example would fall within the Statute in NY.
Statute of Frauds: promises to answer for the debts of another
A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person's promise to pay, and not a primary promise to pay. However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the Statute even though the effect is still to pay the debts of another. NY rejects the main purpose exception. Courts have construed the phrase "answer for" in such a way that substantially limits applicability. "Answer for" is not merely a promise to pay someone else's debts, but rather a promise to another person's debts only if that person does not herself pay. NOTE: Promises to answer for the debts of another is unlikely to be the correct answer in the MBE.
Consideration: forbearance to sue
A promise to refrain from suing on a claim may constitute consideration if the claim is valid or the claimant in good faith believed the claim was valid.
When are rejections effective?
A rejection is effective when received by the offeror.
When is a revocation effective?
A revocation is generally effective when received (when it is read is irrelevant) by the offeree. When revocation is by publication, it is effective when published.
Revocation of offer
A revocation is the retraction of an offer by the offeror. An offer may be revoked by: (a) Later unambiguous statement by offeror to offeree of unwillingness of inability to contract, or (b) Later unambiguous conduct by offeror, of which the offeree is aware, indicating an unwillingness or inability to contract. Note: Merely making multiple offers to different offerees does not necessarily constitute later unambiguous conduct of revocation.
Revocation of a gratuitous assignment
A subsequent assignment of the same rights, death of the assignor, the assignor taking performance directly from the obligor, and the bankruptcy of the assignor will revoke a gratuitous assignment.
Intended third party creditor beneficiaries
A third party beneficiary to a contract in which the promisee's purpose in extracting the promise was to discharge an obligation.
Elements of economic duress
A) "Bad guy" makes an improper threat B) "vulnerable guy" has no reasonable alternative Generally, taking advantage of another person's economic needs is not duress. However, withholding something someone wants or needs will constitute economic duress if : (i) the party threatens to commit a wrongful act that would seriously threaten the other contracting party's property or finances, and (ii) there are not adequate means available to prevent the threatened loss.
Unilateral contracts
Acceptance by performance. The offeror-promisor promises to pay upon the completion of the requested act by the promisee. Once the act is completed, a contract is formed. In unilateral contracts there is one promisor and one promisee. Under the UCC and the Second Restatement, a traditional unilateral contract occurs in only two situations: (i) the offeror clearly indicates that completion of performance is the only manner of acceptance, and (ii) offers to the public, such as rewards.
Acceptance by unauthorized means
An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may still be effective if it is actually received by the offeror while the offer is still in existence.
Written and oral assignments
An assignment need not be in writing to be effective; an oral assignment will generally be effective. For example, an oral assignment of rights under an insurance contract will generally be effective. Exceptions: Wage assignments, assignments of interests in land, assignments of choses in action worth $500 or more, and assignments intended as security interests must be in writing.
When a party assigns "the contract" to a third party, it results in . . .
An assignment of rights and a delegation of duties to the third party.
For an assignment to be effective . . .
An assignor must manifest an intention to transfer all rights under the contract completely and immediately.
Bilateral contracts
An exchange of mutual promises, i.e., a promise for a promise, in which each party is both a promisor and a promisee.
Intended vs. incidental third party beneficiaries
An intended beneficiary is a person who, based on the intent of the parties to a contract, receives the benefit of the contract. An incidental beneficiary benefits from the contract, but that is not the primary purpose of the contract. Only intended third party beneficiaries have contract rights. Incidental third party beneficiaries have no contract rights.
Termination of offer
An offer cannot be accepted if it has been terminated. An offer that has been terminated is "dead"; the caterpillar was stepped on before it could become a butterfly. An offer may be terminated by an act of either party or by operation of law. 1. Lapse of time: offer must be accepted within the stated time frame or within a reasonable time. Generally a month or more is unreasonable. 2. Death of a party prior to acceptance. Death or incapacity of either party after the offer, but before acceptance terminates the offer. 3. Words of conduct of offeror, i.e., revocation.
Irrevocable offers: detrimental reliance
An offer is irrevocable for a reasonable length of time if there has been (i) reliance, that is (ii) reasonably foreseeable to the offeror and (ii) detrimental to the offeree.
Merchants
Article 2 defines a merchant as one who regularly deals in goods of the kind sold or who otherwise by his profession holds himself out as having special knowledge or skills as to the practices or goods involved. For Article 2 provisions dealing with general business practices (e.g., Statute of Frauds, confirmatory memos, firm offers, modification), almost anyone in business can be deemed a merchant. However, some Article 2 provisions, such as the implied warranty of merchantability, require a person to me a merchant with respect to goods of the kind involved in the subject transaction.
Delegation
As a general rule, all contractual duties may be delegated to a third person. Exceptions: Duties requiring personal judgment and skill (e.g., a specific actor's performance) A duty involving special trust between the parties (e.g., attorney/client, physician/patient) Duties subject to contractual restriction on delegation will be given strict effect.
Rights of a third party donee beneficiary
As a general rule, if the promisor fails to perform under a contract, a donee third-party beneficiary whose rights have vested can sue the promisor. Absent detrimental reliance, a donee beneficiary cannot sue the promisee because generally there is no right to sue for nondelivery of a gift.
Irrevocable offers
As a general rule, offers can be revoked at will by the offeror. However, there are four situations in which an offer cannot be revoked: (1) options; (2) UCC Firm Offer Rule; (3) detrimental reliance; and (4) start of performance. NY DISTINCTION: If the offer is in writing, signed by the offeror, and states that the offer is irrevocable, then the offer is not revocable during the time stated or for a reasonable time, even if the offer is not supported by consideration. In other words: in NY no consideration is needed for an offer to be irrevocable.
Mutual and illusory promises
Consideration must exist on both sides of a contact. If only one party is bound to perform, the promise is illusory and will not be enforced. Courts often supply implied promises to infer mutuality. A promise to choose one of several alternative means of performance is illusory unless every alternative involves a legal detriment to the promisor. The promise will not be found illusory if: (i) at least one alternative involves a legal detriment and the power to choose rests with the promisee or a third party, or (ii) a valuable alternative (i.e., one involving legal detriment) is actually selected.
Defenses: duress and unde influence
Contracts induced by duress or undue influence are voidable and may be rescinded as long as not affirmed. The common type of duress occurs when a party's assent is procured by an improper threat (e.g., "sign the contract or I'll break your legs").
Consideration: general
Courts will enforce a promise as a contract only if it is supported by consideration or a substitute for consideration. First, identify the "promise breaker," i.e., the person who is not doing what she promised to do. Second, ask whether that person asked for something in return for her promise, i.e., bargained for something. Third, look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained. In sum, look for a bargained-for legal detriment.
Other public policy defenses
Courts will generally refuse to enforce exculpatory agreements that exempt a party from liability for intentional or reckless conduct. Courts will likewise refuse to enforce covenants not to compete without a reasonable need or without reasonable time and place limitations.
Termination of offer by offeree: rejection
Direct or express rejection: a statement by the offeree that she does not intend to accept the offer. Such a rejection will terminate the offer. E.g., Offeror: "Do you want to buy this?" Offeree: "Nope." Indirect rejection: three primary methods: (1) counteroffer; (2) conditional acceptance; and (3) additional terms (common law only).
Defenses: unconscionability
Empowers a court to refuse to enforce all or part of an agreement where there is (i) unfair surprise (procedural) and (ii) oppressive terms (substantive) (ii) tested as of the time the agreement was made. In NY both procedural and substantive unconscionability are required to avoid enforcement.
Missing term: price
Except in contracts for real property, the failure to state the price does not prevent formation of a contract if the parties intended to form a contract without the price being settled. If a contract for the sale of goods is missing a price term, Article 2 provides that the price will be a reasonable price at the time of delivery.
Offer: must contain a promise, undertaking, or commitment
For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than a mere invitation to begin preliminary negotiations.
Defenses: misrepresentation
Fraudulent misrepresentation: contract voidable If a party induces another to enter into a contract by using fraudulent misrepresentation (i.e., by asserting information she knows is untrue), the contract is voidable by the innocent party if she justifiably relied on the fraudulent misrepresentation. This is fraud in the inducement. Fraudulent misrepresentation may be inferred from conduct. Nonfraudulent misrepresentation: voidable if material Even if a misrepresentation is not fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material. A misrepresentation is material if: (i) it would induce a reasonable person to agree, or (ii) the maker knows that for some special reason it is likely to induce the the particular recipient to agree, even if a reasonable person would not. NOTE: the innocent party need not wait until she is sued on the contract. She make take affirmative action in equity to rescind the agreement in addition to all remedies available for breach of contract.
Statute of Frauds: full performance
Full performance by either party satisfies the Statute of Frauds.
Applicable law
Generally contracts for services, the sale of real estate, intangibles, or construction contracts are governed by the common law. Article 2 of the Uniform Commercial Code governs contracts involving the sale of goods.
Silence as acceptance
Generally silence will not be treated as acceptance. However, if based on prior dealings or trade practices it would be commercially reasonable for the offeror to consider silence as an acceptance, the court may so find. Moreover, if the recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, she may be held to have accepted the offer if she fails to speak.
Assignment of the power of acceptance
Generally the person to whom an offer is addressed has the power of acceptance and this power cannot be assigned. Exception: the right of acceptance in an option contract is transferable.
Bilateral contract formed by performance
If a contract is not formed by the parties' communications but they begin to perform as if they formed a contract, a contract is formed.
Missing term: time
If an agreement does not specify the time in which an act is to be performed, the law implies that it is to be performed within a reasonable time.
Vague or ambiguous terms
If an offer contains vague or ambiguous material terms it is not a valid offer under the common law and the UCC. E.g., use of words like "appropriate," "fair," or "reasonable" with respect to price; profits to be split "on a liberal basis." However, uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance. Offers that state that one or more material terms are to be agreed upon at a later date are too uncertain and are thus invalid.
Defenses: unilateral mistake generally not a defense
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract. However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party. As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange and the mistaken
Public policy defenses: illegality
If the consideration or subject matter is illegal (e.g., a contract to commit murder), the contract is void. Exceptions: (i) plaintiff is unaware of the illegality while defendant knows of the illegality; (ii) the parties are not in pari delicto (i.e., one party is not as culpable as the other); or (iii) the illegality is the failure to obtin a license when the license is for revenue-raising purposes rather than for protection of the public. If only the purpose behind the contract is illegal, the contract is voidable by a party who was (i) unaware of the purpose; or (ii) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
Exception to the all-or-nothing rule:
If the contract expressly divides payment of goods and services, apply the UCC to the sale of goods and the common law to all other provisions.
Defenses: misunderstanding due to ambiguous contract language
If the contract includes a term with at least two possible meanings, the result depends on the parties' awareness of the ambiguity: (i) neither party aware - no contract unless both parties intended the same meaning; (ii) both parties aware - no contract unless both parties intended the same meaning; (iii) one party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words.
Offers involving employment and other services
If the duration of the employment is not specified, the offer, if accepted, is construed as creating a contract terminable at the will of either party. For other services, the nature of the work to be performed must be included in the offer.
NY: Acceptance of unsolicited goods
In NY, unsolicited goods are considered unconditional gifts.
Statute of Frauds in NY
In NY: The following contracts are also within the statute: (i) a promise to pay a discharged debt; (ii) an assignment of an insurance policy or a promise to name a beneficiary of such policy; and (iii) contracts to pay a commission or finder's fee, unless an attorney, auctioneer, or licensed real estate broker is involved.
Assignment: real party in interest
In an assignment, privity between the obligor and the assignor is extinguished, and the assignee replaces the assignor as the real party in interest (the party with the legal right to enforce the claim). The same is not true for the delegation of duties. The delagate does NOT replace the obligor as the real party in interest. When a delagte assumes a duty to perform, the delagate becomes primarily liable on the contract.
Adequacy of consideration
In general, courts do not inquire into the adequacy or fairness of consideration. A mere peppercorn will be sufficient.
Statute of Frauds
In most instances, an oral contract is valid. However, certain agreements, by statute, must be evidenced by a writing signed by the party sought to be bound, or by performance. Contracts subject to the Statute of Frauds: MY LEGS Marriage; Years; Land; Executor of a will; Goods for $500 or more; Surety Contracts Four commonly tested contracts within the Statute of Frauds: 1) Promises to answer for the debts of another 2) service contracts not capable of performance within one year from the time of the contract 3) Transfers of interests in real estate 4) Sale of goods of $500 or more.
Third party beneficiaries
Intended:where the obligee intended to benefit the third party. Incidental: where the obligee did not intend to Is the third Creditor or donee beneficiary? A creditor tpb can sue the oblkige on the oringal underlying obligation. A donee beneficiariy cannot sue the obligee; it is just a failed gift. If the third party beneficiary sues, the defednat can raise any defenses he could have brought if the party to the contract had sued him. A contract can be modified or cancelled without the consent of the tpb until the rights of the tpb have vestd The test is whether the third party knows of and has relied on the contract or has assented to the modification or cancellation as requested. When the the rights of the tpb vest: 1. Third party is asked or required to assent to the contract and does so. 2. Learns of and detrimentally relies on the contract 3. Tpb sues to enforce the contract. Once the tpb's rights have vested, the tpb's consent is required for any modification or cancellation of the contract.
Voidable contracts
Invalid based on a defense, but not entirely void from the beginning. One or both parties may elect to avoid the contract. On the other hand, an aggrieved party may elect to enforce a voidable contract. E.g., infancy, mental illness.
Requirements and output contracts: duty of good faith and fair dealing
It is assumed that partied will act in good faith; hence, there may not be a tender of or a demand for a quantity unreasonably disproportionate to (i) any stated estimate, (ii) any normal or otherwise comparable prior output or requirements.
Consideration: legal benefit and legal detriment
Legal detriment results if the promisee does something he is not legally obligated to do or refrains from doing something he has a legal right to do. NOTE: There need not be an actual detriment. E.g., "stop listening to records by Kinky Friedman for two months and I'll pay you $100." This is sufficient consideration because there is a legal, if not an actual detriment, because I have a legal right to listen to Kinky Friedman, even if I never do. A legal benefit is the forbearance or performance of an act that the promisor was not legally entitled to demand or expect.
Methods of indirect rejection: additional terms
Mirror Image Rule: Traditional contract law insists on an absolute and unequivocal acceptance of each and every term of the offer (the "mirror image rule"). Under common law, a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance. BUT . . . The UCC reject the mirror image rule! Battle of the Forms Provision: Under the UCC, where there a new or additional terms, look for a fact pattern in which there is (i) an offer to buy or sell goods and (ii) a response with additional or different terms. When these conditions are met: (a) First question: is there a contract? Under the UCC, a response to an offer that adds additional or different terms but does not expressly insist on the new terms, i.e., does not make the new terms a condition of acceptance, is generally treated as "a seasonable expression of acceptance." NOTE: whether the parties are merchants is irrelevant in this first question, i.e., as to whether a contract has formed. (b) Second question: is the additional term part of the contract? The additional term is not part of the contract unless both parties are merchants. Even if both parties are merchants, the additional term is not part of the contracts unless the term is "material" (which is a question of fact) or if the additional term is objected to by original offeror.
Applicable law: mixed deals
More important part rule: where a contract involves both services and the sale of goods, determine which part of the contract is more important. If it is predominantly a contract for the sale of goods, the UCC governs the entire contract. If it is more of a services contract than the common law applies. All-or-nothing rule: the UCC either applies to all of the contract or not at all.
Offers involving the sale of real estate
Must identify the land and the price terms. The land must be identified with some particularity but a deed description is not necessary. Most courts will not supply a missing price term for realty.
Defenses: absence of mutual assent
Mutual mistake as to existing facts: if both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if: (i) the mistake concerns a basic assumption on which the contract is made (e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); (ii) the mistake has a material effect on the agreed upon exchange (e.g., the cubic zirconia is worth only a hundredth of what a diamond is worth); and (iii) The party seeking avoidance did not assume the risk of the mistake. This commonly occurs when one party is in a position to better know the risks than the other party (e.g., contractor vs. homeowner), or where the parties knew that their assumption was doubtful (i.e., when the parties were consciously aware of their ignorance). NOTE: mistakes as to the value of the subject matter will generally not be remedied because both parties are deemed to assume the risk that their assumption as to value is wrong.
Can an assignor be liable to an assignee where the obligor becomes unable to perform under the contract?
No, an assignor is not liable to the assignee if the obligor is incapable of performing.
Delegation
Obligor delegates or transfers duty to perform. Generally, all duties may be delegated, except those requiring special skill
Intended third party donee beneficiary
One to whom a promisee intends to make a gift of the benefit of performance by the promisor. If the promisor fails to perform under the contract, a donee third party beneficiary whose rights have vested can sue the promisor to enforce the contract.
Statute of Frauds: part performance of a services contract
Part performance of a services contract does NOT satisfy the Statute of Frauds. Note, however, that while part performance of a services contract does not satisfy the Statute of Frauds and therefore may not result in an enforceable contract, a party may recover under quasi-contract.
Statute of Frauds: performance and transfer of real estate
Part performance satisfies the Statute of Frauds in transfers of real estate. Part performance requires any two of the three: (i) improvements to the land, (ii) payment, or (iii) possession.
Vague or ambiguous terms: requirements and output contracts
Requirements contracts are not vague or ambiguous and are valid. requirements: a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. output: a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
Statute of Frauds: part performance in contracts for the sale of goods
Seller's part performance in a contract for the sale of ordinary goods: The general rule is that part performance of a contract for the sale of goods satisfies the the Statute of Frauds, but only to the extent of the part performance. A primary issue is whether the goods in question have been delivered: where at least some of the goods have been delivered, the buyer no longer has a statute of frauds defense with respect to the delivered goods. Seller's part performance in a contract for the sale of specially manufactured goods: If the contract is for the sale of specially manufactured goods, the Statute of Frauds is satisfied as soon as the seller makes a "substantial beginning" of performance. A "substantial beginning" means that the seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., a custom order.
Past consideration in New York
The NY rule is that past consideration is binding if: 1. The promise is in writing; 2. The past consideration is expressly stated; 3. The past consideration can be proven; and 4. The writing is signed by the promisor.
Statute of Frauds: performance
The Statute of Frauds can be satisfied by performance. Five rules: 1. Part performance in transfer of real estate satisfies the Statute of Frauds; 2. Full performance by either party satisfies the Statute of Frauds; 3. Part performance of a services contract does NOT satisfy the Statute of Frauds 4. Part performance by the seller in contracts for the sale of ordinary goods satisfies the Statute of Frauds to the extent of the part performance; and 5. Part performance by the seller in contracts for the sale of specially manufactured goods will satisfy the Statute of Frauds when there has been a "substantial beginning" of performance.
Offer: definite an certain terms
The basic inquiry is whether enough of the essential terms have been provided so that a contract including them would be capable of enforcement. An offer must sufficiently identify the offeree. The subject matter of an offer must be certain.
Offer: method of communication
The broader the communication media, the more likely it is that the courts will view the communication as merely the solicitation of an offer. Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as mere invitations for offers.
Assignment: death of assignor
The death of the assignor results in the revocation of a gratuitous assignment.
Elements of undue influence
The elements of undue influence are: (i) particular susceptibility to pressure by one party, and (ii) excessive pressure by the other party. Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party. Look for: 1) A special relationship between the parties and 2) improper persuasion of the weaker party by the stronger party.
Termination by operation of law
The following events will terminate an offer by operation of law: 1. Death or incapacity of either party (unless the offer is of a kind the offeror could not terminate, e.g., and option supported by consideration). Death or insanity need not be communicated to the other party; 2. Destruction of the proposed contract's subject matter; or 3. Supervening illegality.
Acceptance: knowledge of offer
The offeree must know of the offer at the time of acceptance and must be the person to whom the offer was made in order to accept it.
Acceptance, generally
The offeror can control the method of acceptance (e.g., "offer shall only be accepted by performance"), the time that a distance acceptance is effective (e.g., "acceptance is effective when the offeror has received the acceptance at offeror's Richmond office"), or whether the offeree must give notice that he or she has accepted by performance (e.g., "acceptance by performance will not be effective until offeror has been so notified"). On most bar exam questions, the offer is silent as to method, time, and notice of acceptance. Instead, bar exam questions on acceptance usually involve: 1) start of performance 2) distance and delay in communication 3) seller sends the wrong goods
Elements of consideration: a bargained-for exchange
The promise induced the detriment and the detriment induced the promise. An act or forbearance by the promisee from doing something that the promisee has a legal right to do (or the promise to act or forbear) is sufficient consideration to form a contract if it benefits the promisor. "Past" or "moral" consideration is not consideration. A promise given in exchange for something already does does not satisfy the bargain requirement. NOTE: There is no bargained-for exchange when one party merely gives a gift to another.
Offers involving the sale of goods
The quantity being offered must be certain or capable of being made certain. The price need not be stated. The court will attempt to determine the intent of the parties where an offer is silent as to price.
Anticipatory repudiation
The repudiating party offers a clear expression of nonperformance. If the language does not rise to the level of repudiation, the nonrepudiating party can seek adequate assurance. If it does rise to the level of anticipatory repudiation, the
Assignment of the right to receive personal services
The right to receive personal services cannot be assigned. If an assignment of rights would result in the obligor being required to perform personal services for someone other than the original obligee, the attempted assignment is invalid. For the purposes of this rule, personal services include only those services that involve the personalty or personal characteristics of the obligor (e.g., services of a lawyer, doctor, artist, author).
Fraudulent sale
The rights of a defrauded seller are cut off both by a good faith buyer and by a person who takes a security interest in the goods.
Common acceptance fact patterns: shipment of nonconforming goods.
The shipment of nonconforming goods is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. The buyer is not required to accept accommodation goods and may reject them. If he does, the shipper is not in breach and may reclaim the accommodation goods, because her tender does not constitute an acceptance of the buyer's original offer.
Statute of Frauds: signature requirement
The signature requirement is liberally construed by most courts. A signature is any mark or symbol made with the intention to authenticate the writing as that of the signor. It need not be handwritten; it can be printed or typed. Under the UCC, a party's initials or letterhead may also be sufficient. An electronic signature is also sufficient.
Parol evidence rule
The terms of a fully integrated contract cannot be altered by evidence of a prior or contemporaneous oral statement or a prior written statement. Exceptions: Where evidence is offered to show a condition precedent that was not met, or to show fraud. The UCC presumes that contracts are partially integrated, so parol evidence will generally be allowed.
Statute of Frauds: writing requirement
The writing need not be a formal written contract; a receipt, letter, check with details in the memo line, or a written offer that was accepted orally will suffice. The Statute only requires only one or more writings that: (i) reasonably identity the subject matter of the contract, (ii) indicate that a contract has been made between the parties, and (iii) state with reasonable certainty the essential terms. An electronic record such as an email satisfies the writing requirement. Whether terms are essential depends on the agreement, context, and subsequent conduct of the parties. If an essential term is included in the writing, evidence is admissible to explain the particulars, but evidence will not be admitted to add a missing term.
Third party beneficiaries: vocabulary
Third party beneficiary: Not a party to the contract. Able to enforce a contract others made for her benefit. Promisor: Look for a person who is making a promise that benefits a third party. Promisee: Look for a person who obtains a promise that benefits the third party. Intended/Incidental: Only intended beneficiaries have contract law rights. Intent of the two parties to contract determines whether intended or incidental. Creditor/donee: Intended beneficiaries are either donees or creditors. Usually donees. Look at whether third-party beneficiary was a creditor of the promisee before the contract.
Communication to offeree
To have the power to accept, the offeree must have knowledge of the offer.
Void contracts
Totally without legal effect from the beginning and cannot be enforced by either party. E.g., an agreement to commit a crime.
Consideration: preexisting legal duty
Traditionally, performing or promising to perform an existing legal duty is insufficient consideration. Exceptions: (i) New or different consideration is promised; (ii) The promise is to ratify a voidable obligation (e.g., a promise to ratify a minor's contract after reaching majority, or a promise to go through with a contract despite the other party's fraud); (iii) The preexisting duty is owed to a third person rather than to the promisor; (iv) There is an honest dispute as to the duty; or (v) There are unforeseen circumstances sufficient to discharge a party (e.g., impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made. NOTE: The UCC does not have a preexisting duty rule. A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding. The test for changes to an existing contract for the sale of goods is whether the parties acted in good faith.
Method of acceptance: offers to buy goods for current or prompt shipment
Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.
Good faith purchaser for value (UCC)
Under the U.C.C., a good faith purchaser for value can be either a buyer without knowledge of any fraud or a person without knowledge of any fraud who takes a security interest in the goods. A party cannot be acting in good faith if he has knowledge of the fraud; thus, a party with knowledge of the fraud cannot be a good faith purchaser for value.
Good faith and fair dealing
Under the UCC and the common law, every contract imposes an obligation of good faith in performance and enforcement. "Good faith" is honest in fact and the observance of reasonable commercial standards. A breach of the duty of good faith and fair dealing often involves exercising discretion in a way that deprives the other party of the fruits of the contract.
Irrevocable offers: UCC firm offer rule
Under the UCC, an offer cannot be revoked for lack of consideration for up to three months if (i) a merchant (ii) offers to buy or sell goods (iii) in a signed, writing, and (iv) the writing gives assurances that the offer will be held open. Notes: there is no common law firm offer rule; it only applies to the sale of goods. In this context a merchant is generally a person in business. If no time period is stated, the offer will be held open for a reasonable time, but in no event may such period exceed three months. An option that does not specify a time period or provides for a three-month period will be irrevocable for three months and revocable thereafter. Exam Tip: the three-month limitation only applies if there is no consideration. Where there is consideration, the option may be held open for as long as the parties specify.
Irrevocable offers: start of performance
Unilateral contract: An offer for a true unilateral contract becomes irrevocable once performance has begun. The offeror must give the offeree a reasonable time to complete performance. The offeree is not bound to complete performance and may withdraw at any time prior to completion, and acceptance does not occur until performance is complete. Mere preparation to perform is not enough. Substantial preparations to perform do not make the offer irrevocable but may constitute detrimental reliance. Where a bilateral contract is indifferent as to the manner of acceptance, the contract may be formed upon the start of performance by the offeree. In such a case the start of performance constitutes acceptance and the contract is complete. Revocation then becomes impossible. NY DISTINCTION: the offer can be revoked until performance is completed.
Common acceptance fact patterns: start of performance
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning or performance. In contrast, an offer for a unilateral contract may be accepted only by complete performance.
Assumption of duty to perform by delagate
When a delagete assumes the duty to perform under the contract, the obligee can compel performance or bring suit against the delagate for nonperformance. A delaagete assumes a duty to perform by making a promise, supported by consideration, to assume the duty.
Entrustment
When an owner entrusts goods to a merchant who deals in goods of that kind, that entrustment gives the merchant the power (but not the right) to transfer all rights of the entruster to a buyer in the ordinary course of business.
Defenses: mistake in transmission
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake.
Confirmatory memo
When two merchants enter into an oral contract for the sale of goods and one party sends to the other party a signed, written confirmation of the agreement, it binds both the sender and the recipient, provided the recipient had reason to know of its contents and did not object in writing within 10 days of receipt.
Common acceptance fact patterns: distance and delay in communication (mailbox rule)
Where the offeror and the offeree are in different places and there are delays in the receipt of communications, four rules are implicated: 1) All communications other than acceptance are effective only when received; 2) acceptance is generally effective when mailed, i.e., at the moment of dispatch (the "mailbox rule"); 3) If the offeree sends a rejection and then sends an acceptance, whichever arrives first is effective; 4) An offeree may not use the mailbox rule to meet an option deadline. Acceptance of an offer in an option contract is effective upon receipt, not when mailed. NOTE: the mailbox rule only applies to acceptance.
Consideration: partial payment as consideration for release
Where there is a promise to forgive the balance of a preexisting debt, the issue is whether the debt is due and undisputed. If so, partial payment is exchange for a promise to forgive the balance is not sufficient consideration.
Defenses: lack of capacity
Who lacks capacity to contract? 1. A person who is under 18 (an infant) 2. A person who is mentally incompetent (lacks the ability to understand the agreement) 3. intoxicated persons (if the other party has reason to know of the first party's intoxication). Intoxication results in the right of the person who lacks capacity to disaffirm the contract. Implied affirmation results when a person makes an agreement while he or she lacked capacity and later upholds the agreement by retaining the benefits of the agreement after gaining capacity, thereby ratifying the agreement.
Assignment
You can't make a valid assignment that would substantially change the obligor's performance.
Unenforceable contract
an agreement that is otherwise valid but may not be enforceable due to a defense extraneous to contract formation. E.g., statute of limitations, Statute of Frauds.
Assignments for value . . .
cannot be revoked. An assignment is for value even if taken as payment for a preexisting debt.
Gratuitous assignments
consideration is not required for an assignment to be effective. Therefore a gratuitous assignment is effective. While consideration is not required for an assignment to be effective, a lack of consideration may affect revocability.
Quasi-contracts or implied in law contracts
constructed by courts to avoid unjust enrichment by permitting the plaintiff to bring an action in restitution to recover the amount of the benefit conferred on the defendant. These are not technically contracts.
Express contracts
formed by language, oral or written.
Implied in fact contracts
formed by manifestations of assent other than oral or written language, i.e., conduct.
An intended third party beneficiary must be . . .
identifiable at the time performance is due.
An assignment for value . . .
is irrevocable. An assignment is for value if it is done for consideration or taken as security for payment of a preexisting debt. Because an assignment for value is irrevocable, the death of the assignor does not revoke the assignment.
Missing terms
the fact that one or more terms are left open does not prevent formation of a contract if it appears that the parties intended to make a contract and there is a reasonable certain basis for giving a remedy. In such a case, the majority of jurisdictions and Article 2 hold that the court can supply reasonable terms.
Method of acceptance
unless otherwise provided, an offer is construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances. Any objective manifestation of the offeree's counterpromise is usually sufficient. NY: Absent any indication to the contrary, the offeror authorizes acceptance only by the means of communication used to communicate the offer. However, the modern trend in NY follows the majority rule.
