Contracts
DURESS BY THREAT
"If a party's manifestation of assent is induced by an improper threat (the other party has no right to make. It is not an improper threat if you are threatening that which you have the right to do) by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim" (Rest.2d$175(1).)
PLAIN MEANING RULE
-A corollary or companion of the Parol Evidence Rule -If a term or word appears to be plain and unambiguous, then no extrinsic evidence is admissible to interpret or explain the meaning of that word or term. -Restatement 2nd and California have rejected the Plain Meaning Rule though they still like that rule in New York.
FRAUD IN THE INDUCEMENT VS. FRAUD IN THE EXECUTION
-Fraud in the inducement = false statements made to persuade someone to enter into an agreement -Fraud in the execution = false statements made regarding the content of the written agreement -Most courts hold only that evidence of fraud in the inducement is not barred by the Parol Evidence Rule
CONTRACTS THAT ARE WITHIN THE STATUTE OF FRAUDS
-contacts not to be performed within one year from the making thereof, -promises to answer of the debt or duty of another -contracts to transfer any interest in real property -contacts not to be performed within the lifetime of the promisor -contracts for the sale of goods for the price of $500 or more. (UCC 2-201)
PAROL EVIDENCE RULE
-only applies to written agreements -parties must have reduced their agreement to final written form -parties must have intended that the written agreement state their complete agreement -If so, evidence of prior or contemporaneous agreements is inadmissible to vary of contradict the written agreement -Doesn't bar extrinsic evidence of subsequent agreements
BREACH OF CONTRACT - COMMON LAW
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BREACH OF CONTRACT - UCC
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WHAT ARE NOT OFFERS AS A GENERAL RULE?
1. Inquiries 2. Invitations to make offers 3. Preliminary proposals 4. Price Quotations 5. Advertisements
MATERIAL TERMS OF A CONTRACT
1. Subject matter 2. Price 3. Payment terms 4. Quantity 5. Quality 6. The work to be done -as a general rule, the more things missing from this list the more likely the contract will be deemed not valid.
AN OFFER MAY BE REVOKED IN ANY OF THE FOLLOWING WAYS
1. express revocation 2. implied revocation - when the offeree learns reliable information that the offeror has taken action inconsistent with keeping gthe offer open. 3. lapse - if no period of time is stated an offer lapses after a reasonable time./ 4. rejection 5 counteroffer - terminates the power of acceptance 6. death or incapancity of the offeror
IS THER A UTY TO DISCLOSE?
1. is one of the party's possessed of superior knowledge? 2. is the fact in question material? (when it would influence the other party's intention to proceed with the contract) 3. does the party of superior knowledgew have reason to believe that the other party has not other means of discovering the material fact? If all 3 of these questions are answered in the affirmative, then there is a duty to disclose.
PROMISSORY ESTOPPEL
1. was there a promise, which the promisor reasonably expected to induce action or forbearance? (foreseeability) 2. did the promise actually induce such action or forbearance? (reliance) 3. can injustice be avoided only by enforcement of the promise? (injustice)
SUMMARY OF 2-207
2-207 rejections the common law mirror iage rule and converts many common law counteroffers into acceptances. a document may be an acceptance under 2-207(1) and yet may differ substantially under the offer 2-207(2)(b) presupposes that a contract can be formed under 2-207 even though the acceptance includes a term that "materially alters" the offer.
Revocation of Acceptance
A buyer may revoke an acceptance, if the buyer discovers a defect after they have accepted the goods. However, a buyer who first accepts and then rejects goods, must make a stronger showing of nonconformity than a buyer who originally rejects. A revoking buyer must show that the nonconformity of the goods substantially impaired the value of the goods, and the impairment was difficult to discover.
Mitigation of Damages
A non-breaching party may not continue with the contract after a repudiation has taken place, merely to build up damages. Rather, the non breaching party must mitigate their damages by securing an alternate contract, if possible.
Retraction of Anticipatory Repudiation
A party who has anticipatorily repudiated may retract the repudiation prior to the time for performance. However, this right of retraction is cut off if the aggrieved party changes position in reliance on the repudiation, notifies the wrongdoer tha the repudiation is accepted, or sues for breach of contract.
Power to Transfer Goods
A purchaser of goods acquires all rights that the transferor had. Therefore, a person with voidable title may transfer foods to a good faith purchaser for value, except that a criminal may never transfer good title to stolen goods.
Time is of the Essence
A reasonable delay in performance will be considered a minor breach, unless time is of the essence, or the breaching party knew or should have known, of a special fact that made a deadline essential. Any delay for a time is of the essence contract, will be considered a major breach. Under the perfect tender rule of the UCC, all deadlines must be met and any delay will be considered a material breach.
Unilateral Contracts/Bilateral Contracts Performed by One Party
Anticipatory repudiation does not apply to unilateral contracts, or to bilateral contracts that are fully performed by one party. In these situations, a non-breaching party may sue for breach of contract on the day that performance of the other party is due.
PLAINTIFF'S RIGHT TO SUE FOR BREACH OF CONTRACT
Anticipatory repudiation occurs where a party indicates that they are unable or unwilling to perform. When this occurs, the other party has a right to suspend their performance and sue for breach of contract. Prospective inability to perform/voluntary disablement, is a lesser form of anticipatory repudiation, where a party indicates in some fashion that they would like to perform, but are having trouble actually performing.
NON-OBJECTING MERCHANT RULE
Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the writing requirement against him, unless notice of objection to its contents is given within 10 days after it is received.
Partial Acceptance
Buyer must pay at the contract rate for any goods accepted.
MATERIAL V. MINOR BREACH - COMMON LAW
Courts will consider a number of factors to determine if a breach is material or minor including: *The deprivation of the expected benefit for the non-breaching party *The amount of performance already rendered. *The likeliness that the breaching party is willing and able to cure their performance *The willfulness of the breaching party *The good/bad faith of the breaching party *Whether or not time is of the essence int he performance of the contract.
CALIFORNIA AND RESTATEMENT RULE
Extrinsic evidence is admissible when relevant to prove a meaning to which the language of the writing is reasonably susceptible.
Implied Acceptance
Implied acceptance by the buyer occurs where the buyer keeps goods without objection, after having had an opportunity to inspect the goods. The buyer need not have actually inspected the goods. When there is a significant time span between delivery and a buyer's rejection, implied acceptance may indicate that the buyer's time for rejection has passed.
Paying for Goods
Mere payment for goods does not constitute acceptance, because the buyer has a rght of inspection and rejection.
ALTERNATIVES TO CONSIDERATION
Promissory Estoppel Unjust Enrichment
Non-Conforming Goods
The buyer must pay at contract rate for all goods accepted, even if the goods are defective.
Buyer's Timely Right of Inspection and Acceptance or Rejection of Goods
The inspection and/or rejection of goods must take place by the buyer within a reasonable period of time after the goods are delivered and before acceptance of the goods. The buyer must give prompt notice to the seller that the buyer is rejecting the goods, and follow reasonable instructions from the seller concerning the rejected goods. If the seller gives no instructions, the buyer must make reasonable efforts to sell the goods, and the buyer will be entitled to reimbursement for reasonable expenses of caring for goods and selling them, which is not to exceed ten percent of the gross proceeds.
Termination of Performance for Material Breach
The non-breaching party may terminate their performance, and the contract, upon a material breach, if the breach is not cured by the breaching party within a reasonable period of time.
SELLER'S RIGHT TO CURE
The perfect tender rule is modified by the seller's right to cure, and a seller who tenders non-conforming goods has a right to cure the defective performance without being said to have breached the contract. The right to cure is present when the seller notifies the buyer of their intention to cure by delivering conforming goods, and such notification occurs before the time for seller's performance. If the time for performance has passed, the seller will have a reasonable time to cure through tender of conforming goods if the seller thought that the non-conforming goods would be acceptable to the buyer.
Installment Contracts
The perfect tender rule is modified in the case of contracts which cover several deliveries under an installment contract, where each lot is separately delivered and accepted. Under an installment contract, a buyer may reject an installment which is non-conforming only where there is a substantial impairment in the delivery which cannot be cured. However, cancellation of the entire contract may occur only if a defect substantially impaired the value of the entire contract, because minor defects may be corrected in later installments.
EXCLUSIVE DEALINGS CONTRACT/ Outputs or Requirements Contracts.
Under an exclusive dealing contact, the seller must use their best efforts to supply goods, and the buyer must use their best efforts promote the sale of goods.
SUBSTANTIAL PERFORMANCE
Under the common law, a party who substantially performs their contractual duties will have fulfilled their duties under the contract, thus avoiding a material breach of contract. Any possible breach will be minor, and the non-breaching party will not be allowed damages. The non breaching party under a minor breach must still perform their duties before suing for damages.
THE PERFECT TENDER RULE, UCC 2-601
Under the perfect tender rule, buyers do not have to settle for a faulty or for an only substantial performance from the sellers. Therefore, if the goods fail in any respect to conform to the contractual requireemnts, a buyer may reject all of the goods, accept all of the goods, or accept any party and reject the remainder. Additionally a late payment may also be a material breach under the perfect tender rule, and all deadlines must be met. Any delay will be considered a material breach.
Payment and Price
Unless otherwise agreed, payment is due at the time and place of delivery for conforming goods. Payment by check is normally fine, but if the seller demands payment in legal tender, then the buyer must be given an extension of time reasonably necessary to secure legal tender.
Open Price Term
When a contract has an open price term, the price imposed is a reasonable price at the time of delivery.
RULES OF CONTRACT INTERPRETATION
When extrinsic evidence is admissible: the test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appear to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.
Divisible Contracts
Where both parties have divided up performance, into units of essentially equal equivalents, so that part performance is basically the compensation for the other party's part performance, the contract will be treated as separate/divisible contracts, and if one party partially performs the other needs to make a partial payement. If there is only one payment designated at the end of total performance, this will not necessarily indicate a lack of a divisible contract. The breaching party in a divisible contract who completes some segments of performance, will be entitled to payment for their completed performance, offset by damages for their failure to perform all segments of their performance. An employment contract will normally be divisible contract. The substantial performance test for common law contracts is applied separately to each divisible portion of the contract.
Divisible Contracts
Where both parties have divided up performance, into units of essentially equal equivalents, so that part performance is basically the compensation for the other party's part performance, the contract will be treated as separate/divisible contracts, and if one party partially performs the other needs to make a partial payment.
Anticipatory Repudiation or Prospective Inability to Perform/Voluntary Disablement
Where reasonable grounds arise for insecurity with respect to the performance of the other party, the insecure party may put into writing a demand for adequate assurances of performance. If there is a failure to give assurances in a timely fashion, which for the UCC is not to exceed thirty days, this will be considered an outright repudiation, which will allow the insecure party to cancel the contract and sue for breach of contract.
Right to Adequate Assurances of Performance for Prospective Inability to Perform
Where reasonable grounds arise for insecurity with respect to the performance of the other party, the insecure party may put into writing a demand for adequate assurances of performance. If there is a failure to give assurances in a timely fashion, which for the UCC is not to exceed thirty days, this will be considered an outright repudiation, which will allow the insecure party to cancel the contract and sue for breach of contract.
CONTRACT INTERPRETATION
Where the parties attach the same meaning to the terms used in their agreement, the interpretation of the agreement should be in accord with that meaning even if a third party might interpret the language differently. (Rest.2d 201(1).) Whatever an objective observer might think, if the contracting parties attach different meanings to the same term, then neither is bound by the understanding of the other unless one of them knew or gad reason to know what the other understood the disputed term to mean. (Rest.2d 201(3))
Seller's Right to Cure After Time for Performance
Where the seller's time for performance has passed, and the buyer was flexible in the past and received non-conforming goods, the seller may have additional time to cure.
RULE OF MONARCO V. LOGRECO
a defendant is precluded from asserting the SOF where the plaintiff would be unconscionably injured or the defendant unjustly enriched and the plaintiff in reliance on the oral promise has changed his position. (see Rest.2d$139)
ABOLISHING THE MIRROR IMAGE RULE UCC 2-207
a difintie and seasonable expression of acceptance operates as such even though it contains additional or different terms. Additional terms are treated as proposals for addition to the contract.
ACCEPTANCE DEFINED
a manifestation of willingness to be bound by the terms of an offer made in the manner invited or required by the offer.
"OFFER" DEFINED
a manifestation of willingness to enter into a bargain, which creates in the offeree the power of acceptance. Rest 2d $24
MISREPRESENTATION
a misrepresentation is "an assertion that is not in accord with the facts." (Rest.2d$159). the willful or negligent misrepresentation of a material fact, or the failure to disclose a material fact when there is a duty to do so, is ground for rescinding a contract.
MERCHANT
a person that deals in goods of the kind or otherwise holds itself out by occupation as having knowledge or skill peculiar to the practices or goods involved in the transaction or to which the knowledge or skill mah be attributed by the person's employment of an agent or broker of other intermediary that holds itself out by occupation as having the knowledge or skill (UCC 2-104)
ILLUSORY PROMISE
a promise, which is conditioned upon the whim of the promisor. A commitment that is cloaked in promissory terms but upon closer examination it is conditioned on the whim of the promisor. An illusory promise is not consideration.
MIRROR IMAGE RULE
a purported acceptance, which varies from the terms of the offer in any way operates as a rejection and counter-offer.
MATERIAL ALTERATION
a variation is material if it would result in surprise hardship if incorporated without express awareness by the other party.
MAILBOX RULE
acceptance is effective upon dispatch. Consent is deemed to be fully communicated when the offeree has placed his acceptance into the course of transmission (beyond his control) to the offeror.
NOTICE OF ACCEPTANCE IN A BILATERAL CONTRACT
acceptance must be communicated.
EFFECT OF ACCEPTANCE
acceptance results in the formation of a contract. Both parties are bouncd and neither can withdraw from the bargain without incurring liability to the other.
IF BOTH PARTIES ARE MERCHANTS
additional terms become part of the contract un less: a. the offer expressly limits acceptance to the terms of the offer b. they materially alter it; or c. notification of objection to them is gien within a reasonable time.
ADVERTISEMENTS AS OFFERS
an advertisement is not an offer but rather only an invitation to deal. However, where the offer is clear, definite and explicit and leaves nothing open for negotiation, it constitutes an offer acceptance of which will form a contract.
CONTRACTS NOT TO BE PERFORMED IN ONE YEAR
an agreement that by its terms is not to be performed within a year from the making thereof comes within the Statute of Frauds. (Disfavored by the courts and they read very strictly. One year begins to run from the time the contact is formed).
OPTION CONTRACTS
an irrevocable option is a contract, made for consideration to keep an offer open for a certain period of time. Unless consideration is given the option is revocable at any time.
ANOTHER KIND OF OPTION CONTRACT
an offer which the offeror should reasonably expect to induce action or forbearance on the part of the offeree before accepgance and which does induce such action or forbearance ifs binding as an option contract to the extent necessary to avoid injustice (Rest. 2d $87(2))
CONSIDERATION
any act or forbearance, which is of benefit to the promisor or detriment to the promisee.
USAGE OF TRADE
any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it wil be observed with respect to the transaction in question. (UCC 1-205(2)). *Can be looked to in order to interpret or explain a term in a contract even if the term appears unambiguous on its face.
GRATUITOUS PROMISES
are those, which are not supported by consideration.
THE NOTE OR MEMORANDUM REQUIREMENT
at a minimum the memorandum must state with reasonable certainty: 1. the identity of both contracting parties; 2. the subject matter of the contract so that it can be identified either from the writing or if the writing is not clear by the aid of extrinsic evidence; 3. the essential terms and conditions of all the promises constituting the contract and by whom and to whom the promises are made. (Rest. 2d$131) *Even if it has been lost or destroyed still enough to satisfy Statute of Frauds
Statute of Frauds
certain contracts are invalid, unless the same, or some note or memorandum thereof, is in writing and signed by the party to be charged. This is an exception to the general rule that an oral contract is valid and enforceable.
SUBSECTION 3 OF THE UCC 2-207
conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such a case the terms of the contract consist of those terms on which the writings of the parties agree, together with any gap filler provisions of the UCC.
MERCHANT'S FIRM OFFER UCC 2-205
contracts for the sale of goods and exception to the rule: 1. an offer 2. by a merchant 3. in a signed writing 4. which gives assurance that it will be held open is not revocable for lack of consideration
LIMITATIONS ON DEFINITION OF CONTRACT
courts will not enforce gratuitous promises
EXCEPTIONS TO THE PAROL EVIDENCE RULE
extrinsic evidence is admissible to show: Mistake Fraud in the Inducement
UCC 2-302
if a court finds as a matter of law that a contract is unconscionable the court may: 1. Refuse to enforce the entire contract, 2. Or any part of it, or 3. The court may limit the application of a particular clause to prevent an unconscionble result. *Lack of meaningful choice coupled with harsh or one-sided contact terms.
MENTAL INCOMPETENCY
if a party by reason of mental illness or defect is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition the contract is voidable. (Rest.2d$15)
Within the Statute of Frauds
if its provisions are such that is operation and enforceability depend upon compliance with the writing requirements of the statute, then the contract is said to be "within the Statute of Frauds." If its operation and enforceability do not depend on such compliance, it is said to be "not within the Statute of Frauds". According to this usage, a contact may be 'within the State' even though it is completely in writing and duly signed and delivered, so that the requirements of the state are fully satisfied.
THE REQUIREMENT OF DIFINITENESS
in order to be enforceable, a contract must be reasonably certain as to its material terms. Terms are reasonably certain if they provide a basis for determining the existence of a breach, and for giving remedy. (Rest. 2d$33)
ADHESION CONTRACT
is a standardized contract, imposed and drafted by the party of superior bargaining strength to cover transactions with many people rather than with an individual, which relegates to the subscribing party only the opportunity to adhere to the contract or reject it.
PAST CONSIDERATION
is no consideration because it flunks the bargained for exchange test.
CONTRACT MODIFICATION
notwithstanding the preexisting duty rule, a promise modifying a contract ios binding if "the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made." (Rest.2d$89(a).) (Watkins and Son v. Carrig)
UNJUST ENRICHMENT
occurs whenever one receives a benefit under circumstances where it would be unjust to permit them to retain the benefit without making compensation for it. Restitution is a remedy for unjust enrichment. Restitution means having the party return the benefit or the value of the benefit. (Farnsworth book soctor rendering aid) Quantum Meruit? Reasonable value of the services.
CONTRACTS OF SURETYSHIP
promises to answer for the debt or duty of another are within the Statute of Frauds.
PAST CONSIDERATION - EXCEPTION
restatement 2d $86 - a promise made in recognition of a benefit previously received is enforceable to the extend necessary to prevent injustice unless the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched.
SILENCE NOT ORDINARILY ACCEPTANCE
since acceptance must be communicated, ordinarily silence cannot constitute acceptance.
SETTLEMENT OR COMPROMISE
the compromise of a doubtful claim is supported by consideration so long as the claim is pressed in good faith and there is a bona fide dispute. The release from the mere annoyance of unfounded litigation does not amount to consideration. Fiege v. Boehm
CONTRACTS OF MINORS
the contract of a minor, other than for necessaries, is voidable at the minor's option. Minors only incur voidable contractual duties. A necessity for life is dependant upon the circumstances and the minor's station in life. *Only the minor has the right to avoid the contract based upon their age.
WRITING REQUIREMENT FOR UCC VERSION OF SOF
the essential elements of a memorandum required y UCC 2-201 are: 1. A writing 2. Signed by the party to be charged, which 3. Recites a quantity term * Price does not have to be stated and quantity does not have to be stated accurately but the quantity will not be enforced greater than stated quantity.
ILLEGALITY
three categories of illegal contracts: 1. those contrary to express statutes; 2. those contrary to the policy of express statutes 3. those otherwise contrary to good morals *For the judge to decide. Burden of proof is on the defendant.
"BARGAINED FOR EXCHANGE"
to constitute consideration the promisee's performance must be bargained for. The promise must induce the detriment and the detriment must induce the promise.
EFFECT OF PART PERFORMANCE ON OFFEROR'S ABILITY TO REVOKE
unilateral contract - where an offer invites acceptance by rendering performance, the offer becomes irrevocable when the offeree begins to perform (Rest.2d $45(1))
NOTICE OF ACCEPTANCE IN UNILATERAL CONTRACT
where an offer invites acceptance by performance, no notification of acceptance is necessary. However, if the offeree has reason to know that the offeror has no adequate means of learning of the performance, notice is required.
EXCEPTIONS FOR OPTION CONTRACTS
where option contacts are involved, a counteroffer made during the option period does not terminate the power of acceptance because the offeree has the contractual right to have the offer held open during its term.
THE MAIN-PURPOSE OF LEADING OBJECT RULE EXCEPTION
where the promisor makes the promise for the purpose of his own monetary benefit or gain, so that the debt for which he is liable may fairly be deemed to be a debt of his own.
