Contracts (bar exam)
a writing satisfies the SOF (article 2) if:
(1) there is a contract (2) for the sale of goods that (3) contains the quantity term (how many)
Problems to Watch For - Content
(a) missing PRICE term in SALES contract (b) vague or ambiguous MATERIAL terms not an offer under either common law or UCC (c) Requirements Contracts/Output Contracts
Possible CONSIDERATION issues
(i) Bargained For: asked for by the promisor IN EXCHANGE for the promises (ii) Legal Detriment (iii) Promise as Consideration → this is valid -illusory promise exception → Example: S promises to sell her house to B, unless she changes her mind -EXAM TIP: NEVER choose an answer with illusory promise; NEVER choose an answer with adequate consideration
elements of ECONOMIC DURESS
-1) "bad guy" → IMPROPER THREAT which is usually a threat to breach the existing contract, AND 2) "vulnerable guy" → NO reasonable alternative -Example: D has a contract to supply 1,000 pounds of kosher grits to P for Chanukah sales in 2012. D refuses to perform this contract until P agrees to buy 4,000 pounds of cheese grits in 2013. P has no other source of kosher grits and so agrees. D delivers the kosher grits. Can P get out of the agreement to buy 4,000 pounds of cheese grits in 2013? → Yes, because D threatened to breach, and P had no alternative.
UNILATERAL Mistake of Material Fact
-EXAM TIP: this is usually a wrong answer -in General: courts are reluctant to allow a party to avoid a K for a mistake made by only ONE party -HOWEVER, there will be relief for situations in which the other party had reason to know of the mistake → palpable mistake
method of acceptance - the Seller of Goods sends the "Wrong" Goods
-General RULE: acceptance and breach -Accommodation (i.e., explanation) EXCEPTION: counteroffer and no breach
How SOF operates:
-If SOF is applicable, then the requirements of the SOF must be met in order for the agreement to be enforceable. -If the requirements of the SOF are not satisfied, there is a SOF defense -If the SOF defense is ASSERTED and ESTABLISHED, there is no legally enforceable agreement (NO K liability)
mixed deals
General RULE: all or nothing; more important part EXCEPTION: if K DIVIDES PAYMENT, then apply UCC to sale of goods part and common law to rest
misrepresentation
-Look for (1) a statement of "fact" before the K, (2) by one of the contracting parties or her agent, (3) that is FALSE, and (4) INDUCES the contract -NOTE: NO WRONGDOING REQUIRED for material misrepresentations -NOTE: even if the misrepresentation is honest, the other party can still rescind
*Written proof of authorization to enter into contract for someone else:*
-Main Issue: when do RULES OF LAW REQUIRE that a person have written authorization in order to execute a contract for someone else? -RULE: RULES OF LAW REQUIRE that the authorization must be in writing ONLY IF the contract to be signed is within the SOF, i.e., the authorization must be of equal dignity with the contract -Example: Landlord (L) sues Mila Kunis for breach of a one-year apartment lease (not w/in SOF) that I entered into, claiming that I was authorized to act on Ms. Kunis's behalf. → Contract law does NOT require written evidence of my authority to act on behalf of Ms. Kunis.
Additional Terms
-Mirror Image Rule (common law) -Seasonal Expression of Acceptance → UCC Article 2 (2-207)
unilateral contract - mere preparation
-NOT enough to make the offer irrevocable under the unilateral K rule -HOWEVER, mere preparation may be enough to trigger detrimental reliance
What are Consideration SUBSTITUTES?
-NOTE: only used if there is NO consideration -RULE → a promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes: i) a WRITTEN promise to satisfy an obligation for which there is a legal defense and is enforceable WITHOUT CONSIDERATION ii) Promissory Estoppel (detrimental reliance)
Contract Provisions REQUIRING WRITTEN MODIFICATION
-NOTE: this is the only place in which you ignore what the parties themselves have agreed to -Common Law RULE: contract provisions requiring that ALL MODIFICATIONS BE IN WRITING are NOT effective → ignore the contract language -UCC RULE: contract provisions requiring written modifications ARE effective unless waived
Performance and Transfer of Real Estate:
-Performance RULE #1: part performance satisfies the SOF in transfers of real estate -Part Performance requires ANY 2 of the following 3: 1) improvements to the land 2) payment 3) possession
Common Law applies to
Ks that are primarily for things other than goods (i.e., SERVICES, real estate)
Performance and Services Contracts:
-Performance RULE #2: FULL performance by EITHER party satisfies the SOF -Performance RULE #3: PART performance of a SERVICES contract does NOT satisfy the SOF -Example: P agrees to work for D for 3 years. P works for 13 months (part performance) and then D fires her without cause. P sues D for breach of contract. D asserts a SOF defense. → SOF is NOT satisfied by P's working for 13 months because PART PERFORMANCE doesn't work for service Ks under the SOF. --Can P recover under contract law for the 13 months of work she had done? → NO --Under quasi-contract? → YES (watch for this on exam)
Seller's Part Performance → SPECIALLY MANUFACTURED Goods (satisfying the SOF)
-Performance RULE #5: if the contract is for the sale of goods that are to be SPECIALLY MANUFACTURED, then the SOF is satisfied as soon as the seller makes a substantial beginning -substantial beginning: the seller has done enough work that it is clear that what she is working on is specially manufactured, i.e., custom made or made to order
Requirements Contracts/Output Contracts
-RULE: a K for the sale of goods can state the quantity of goods to be delivered under the K in terms of the buyer's requirements or seller's output → all, only, exclusively, solely -REQUIREMENTS or OUTPUT CONTRACTS are not vague or ambiguous and ARE VALID -increase in requirements: buyer can increase requirements so long as the increase is in line with prior demands → NO unreasonably disproportionate limitation on increases
nondisclosure
-RULE: a person MAKING a contract has NO DUTY TO DISCLOSE what she knows → there is a wrongdoing requirement for nondisclosure (look for fiduciary-like relationship or concealment) -Example: In selling his 1973 Cadillac to Bob, Richard not only does not tell Bob that much of the car has rusted but also paints the car burnt orange to conceal the rust → Bob can rescind b/c there is concealment
advertisement or price quote
-RULE: an advertisement or price quote is NOT an offer -EXCEPTIONS: i) an advertisement can be a unilateral offer if it is in the nature of a reward ii) an offer can be an advertisement if it specifies quantity and expressly indicates who can accept iii) price quote can be an offer if sent in response to an inquiry
illegal purpose
-RULE: if the subject matter is legal, the agreement is enforceable if the plaintiff did NOT have reason to know of the defendant's illegal purpose -Example: John Bailey agrees to pay $7,000 to Jessica Alba to injure Adam. Alba then contracts with Delta for a nonrefundable ticket to fly from Los Angeles to Chicago where Adam is. → If Alba does not pay for the ticket, Delta can recover from Alba for breach of contract.
method of acceptance - offeree starts to perform
-RULE: starting to perform is treated as an implied promise to perform, thus creating a bilateral contract → START of PERFORMANCE = acceptance -EXCEPTION: start of performance is NOT acceptance of UNILATERAL contract offers → completion of performance is required
Pre-existing Contractual or Statutory Duty Rule - UCC Article 2 general RULE:
New consideration is NOT required to modify a sale of goods contract (no pre-existing duty rule) → GOOD FAITH is the test for changes to an existing sale of goods contract
Seller's Part Performance → ORDINARY Goods (satisfying the SOF)
Performance RULE #4: part performance of a contract for the sale of goods satisfies the SOF, but only to the extent of the part performance → look to see if question is about delivered goods or undelivered goods
person who accepts
RULE → generally, an offer can be accepted only by: 1) a person who knows about the offer at the time she accepts 2) who is the person to whom it was made NOTE: offers cannot be assigned NOTE: options can be assigned (unless option provides otherwise)
Past Consideration
RULE: NOT consideration EXCEPTION: EXPRESSLY REQUESTED by promisor AND expectation of payment by promisee
Mistake in Integration, i.e., clerical mistake
RULE: a court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing
termination
RULE: an offer CANNOT be accepted if it has been terminated; an offer that has been terminated is dead
DEATH of a party PRIOR TO ACCEPTANCE - Rule
RULE: death or incapacity of either party after the offer, but before acceptance, terminates the offer EXCEPTION: irrevocable offers
illegal subject matter
RULE: if the subject matter is illegal, the agreement is not enforceable
Delivery Obligations of SELLER of GOODS if Delivery by COMMON CARRIER
RULE: if there is an agreement as to place of delivery by a common carrier, then the question is → What does the seller have to do to COMPLETE its DELIVERY OBLIGATION?
Ambiguity, i.e., explaining term in the written deal
RULE: regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract
Defenses, i.e., getting out of a written deal
RULE: regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress
Adding to the Written Deal
RULE: the parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds (i) that the written agreement was only a PARTIAL integration or (ii) that the additional terms would ordinarily be in a separate agreement
custom and usage
-different but similar people, different but similar contract -Example: S contracts to sell 1,000 chickens a month to B for 12 months. It is customary in the chicken industry to use the word "chicken" when the deal covers chickens up to six pounds, including boiling hens.
Pre-existing Contractual or Statutory Duty Rule - Common Law General Rule
-doing what you are ALREADY legally obligated to do is NOT new consideration for a new promise to pay you more -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Notwithstanding the contract, Iron & Wine refuses to play unless they are paid $20,000, not $15,000. Conan promises to pay Iron & Wine $20,000. Iron & Wine performs. Conan only pays Iron & Wine $15,000. → Conan's promise is NOT legally enforceable b/c Iron & Wine's promise to perform as they were already obligated to is NOT new consideration
how to handle a missing PRICE term in SALES contract
-for a sale of real estate (common law), price and description are required, not an offer -sale of GOODS (Art. 2) → NO price requirement
counteroffer
-generally terminates the offer and creates a NEW OFFER -where a counteroffer has been made, there is NO EXPRESS CONTRACT unless the counteroffer itself has been accepted -Example: S offers Blackacre to B for $10,000. B responds, "I will only pay $9,000." -NOTE: counteroffers do NOT terminate options -NOTE: distinguish counteroffer from bargaining → bargaining does NOT terminate the offer -Example: S offers Blackacre to B for $10,000. B's response is, "Will you take $9,000?" → When the response to an offer is a question, it is bargaining and NOT a counteroffer.
Part Payment as Consideration for Release
-i.e., promise to forgive balance of debt -RULE: key is whether debt is due and undisputed → if debt is due and undisputed, then PART payment is NOT consideration for release
Changing/Contradicting Terms in the Written Deal - Parol Evidence
-regardless of whether the writing is a complete or partial integration, evidence of earlier agreements is not admissible for the purpose of contradicting the terms in the written contract -General RULE: cannot use parol evidence to change/contradict
course of dealing
-same people, different but similar contract -Example: S contracts to sell 1,000 chickens a month to B for 12 months. Under prior chicken contracts, S sent B boiling hens, and B complained.
course of performance
-same people, same contract -Example: S contracts to sell 1,000 chickens a month to B for 12 months. The first three shipments are boiling hens, and B does not complain.
5 Parol Evidence Fact Patterns
1) Changing/Contradicting Terms in the Written Deal 2) Mistake in Integration, i.e., clerical mistake 3) Defenses, i.e., getting out of a written deal 4) Ambiguity, i.e., explaining term in the written deal 5) Adding to the Written Deal
3 Methods of Indirect Rejection:
1) Counteroffer 2) Conditional Acceptance 3) Additional Terms
4 Methods of Termination
1) LAPSE of time → time stated in K or reasonable time 2) DEATH of a party PRIOR TO ACCEPTANCE 3) WORDS or CONDUCT of offeror (i.e., REVOCATION of an offer) 4) WORDS or CONDUCT of the offeree: REJECTION
Legal Reasons for NOT Enforcing an Agreement
1) Lack of Consideration or a Consideration Substitute for the Promise at Issue 2) Lack of Capacity of the Person who Made the Promise 3) Statute of Frauds 4) Existing Laws that Prohibit the Performance of the Agreement 5) Public Policy 6) Misrepresentations 7) Nondisclosure 8) Duress 9) Unconscionability 10) Ambiguity in Words of Agreement 11) Mistakes at the time of the Agreement as to the Material Facts
4 Situations in Which an offer is IRREVOCABLE:
1) Option Contract 2) UCC "Firm Offer Rule" 3) Reliance 4) *unilateral contract*
*Most Likely Consideration Issues*
1) Past Consideration 2) Pre-existing Contractual or Statutory Duty Rule (common law different from Art. 2) 3) Part Payment as Consideration for Release 4) What are Consideration SUBSTITUTES?
How the SOF is SATISFIED:
1) Performance 2) Writing
4 Contracts w/in the SOF
1) Promises to ANSWER FOR the debts of another (suretyship) 2) Service contract not CAPABLE of being performed WITHIN A YEAR FROM THE TIME OF THE CONTRACT (i.e., more than one year) 3) Transfers of interest in REAL ESTATE (EXCEPTION: leases of one year or less) 4) Sale of Goods for $500 or more
BILATERAL Contract UNLESS:
1) reward, prize, context; OR 2) offer expressly requires performance for acceptance
Consequences of Incapacity
1) right to DISAFFIRM by person w/o capacity → NOT enforceable against person who lacks capacity 2) implied affirmation by retaining benefits after gaining capacity (ratificaiton) 3) Quasi-Contract liability for NECESSARIES → a person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law (measured by the value of the benefit conferred)
2 Ways for Seller to COMPLETE its DELIVERY OBLIGATION:
1) shipment contracts 2) destination contracts
Methods of Acceptance
1) the offeree STARTS TO PERFORM 2) Distance and Delay in Communications 3) the Seller of Goods sends the "Wrong" Goods
Contracts - General Issues
Applicable law Formation of contracts Terms of contract Performance Remedies for unexcused nonperformance Excuse of nonperformance Third-party problems
offer
a manifestation of an intention of one person to contract → words or conduct showing commitment by one person
Mirror Image Rule (common law):
a response to an offer that adds new terms is treated like a counteroffer rather than acceptance (acceptance must be mirror image of offer)
4 rules for distance and delay in communications:
a) all communications OTHER THAN ACCEPTANCE are effective only WHEN RECEIVED b) acceptance is generally effective WHEN MAILED (i.e., mailbox rule) c) if a rejection is mailed before an acceptance is mailed, then neither is effective until received d) you CANNOT use the mailbox rule to meet an OPTION deadline
**How an offer is revoked**:
a) later UNAMBIGUOUS STATEMENT by offeror to offeree of unwillingness or inability to contract (that the offeree is aware of); OR b) later UNAMBIGUOUS CONDUCT by offeror indicating an unwillingness or inability to contract that the offeree is aware of NOTE: multiple offers does NOT constitute revocation
definition of contract
an AGREEMENT that is LEGALLY ENFORCEABLE 1) look for an agreement 2) determine whether the agreement is legally enforceable
UCC "Firm Offer Rule"
an offer cannot be revoked for up to 3 months if: (i) offer to buy or sell goods; (ii) signed, written promise to keep the offer open (no oral promises); AND (iii) party is a MERCHANT (merchant: generally, a person in business) -NOTE: no consideration necessary -Example of Firm Offer: S, a used car dealer, offers to sell B a 1973 Cadillac for $400. The offer is in writing, signed by S, and expressly promises it will be kept open for a week.
option contract
an offer cannot be revoked if the offeror has not only made an offer, but also: (i) promised to not revoke (or promised to keep the offer "open"); AND (ii) this promise is supported by payment or other consideration ("option") -Example of Option K: S offers to sell B her car for $400. B pays S $10 for S's promise "not to revoke the offer for a week."
Reliance (situation in which an offer is irrevocable)
an offer cannot be revoked if there has been: (i) reliance that is (ii) REASONABLY FORESEEABLE and (iii) detrimental
Article 2 of the UCC applies to
applies to Ks that are primarily for SALES OF GOODS
merger clause:
contract clause such as, "This is the complete and final agreement." (persuasive but not conclusive)
Proof Required to Satisfy the SOF:
either: 1) performance; OR 2) a writing signed by the person who is asserting that there was no such agreement
Quasi Contract
equitable remedy
judicial admission
if the defendant asserting a SOF defense admits in a pleading or testimony that he had entered into an agreement with the plaintiff, the SOF is satisfied
Which offers are irrevocable?
irrevocable: no possibility revocable: possibility revoked: actuality General RULE: offers can be freely revoked by the offeror
undue influence
look for (1) special relationship between the parties and (2) improper persuasion of the weaker by the stronger
test for whether the initial communication is an offer
manifestation of commitment
vague or ambiguous MATERIAL terms
material terms consisting of "appropriate", "fair", or "reasonable" → NO offer
Phrases that indicate there is a unilateral contract:
offer + "only by"
Words/Phrases that indicate there is Conditional Acceptance:
response to offer → "accept" + "if", "only if", "provided", "so long as", "but", OR "on condition that"
Unilateral Contract
results from an offer that EXPRESSLY REQUIRES performance as the ONLY POSSIBLE METHOD OF ACCEPTANCE
estoppel
the plaintiff's reliance on the defendant's oral promise can estop the defendant from asserting a statute of frauds defense
*unilateral contract*
the start of performance under an offer to enter into a unilateral K makes that offer irrevocable for a reasonable time to complete the performance
basic test for OFFER
whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract
manifestation
words or conduct
integration:
written agreement that court finds is the final agreement, triggers the parol evidence rule
complete integration:
written and final AND complete (usually a wrong answer on MBE)
partial integration:
written and final, but not complete (usually a wrong answer on MBE)
parol evidence is limited to:
-words of party (or parties) -before integration, i.e., before agreement was put in written form -Oral OR Written
*Written Proof of CONTRACT MODIFICATION*
-Sometimes there is NO legal requirement of written evidence of an alleged modification of a written contract. -Resolve any LEGAL issue of whether such written evidence of the MODIFICATION is needed by: 1) looking at the deal with the alleged change AND 2) determining whether the deal with the alleged change would be w/in the SOF → if the deal with the alleged change would be within the SOF, then the alleged MODIFICATION agreement must be in writing -Example: T leases a building from L for one year. L claims they later agreed to increase the term to 3 years. → the K as modified is a 3 year lease, so a writing IS required
Promises to ANSWER FOR the debts of another
-Suretyship -Not merely a promise to pay but, rather, a promise to pay IF SOMEONE ELSE DOES NOT -the Main Purpose EXCEPTION: if the MAIN PURPOSE of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is w/in the SOF -EXAM TIP: for MC, you almost never get w/in the SOF b/c it's a promise to answer for the debts of another
Statute of Frauds ("SOF"), Generally:
-The SOF is a statute designed to prevent fraudulent claims of the existence of a contract. SOF makes it harder to make such a false or fraudulent claim by requiring the claimant to have proof other than just testimony that a contract exists before the claimant gets his day in court. -In essence, it is a barrier b/w: (a) a litigant's asserting a contract claim, and (b) a trial on that claim -If a contract claim is w/in the SOF, then the SOF's requirement of "special proof" must be satisfied to get through the SOF barrier to trial
Seasonal Expression of Acceptance
-UCC Article 2 (2-207): additional or different terms NOT rejection -typically arises when there is (i) an offer to buy or sell goods AND (ii) a response with additional or different terms → this raises 2 questions: 1) Is there a contract? → under the UCC, a response to an offer that adds additional or different terms, but does not make the new terms a CONDITION OF ACCEPTANCE, is treated as acceptance (a "seasonable expression of acceptance") (NOTE: whether parties are merchants is irrelevant for this question) 2) Is the additional term a part of the contract? → the additional term IS a part of the K only if: (i) both parties are merchants; (ii) additional term is not "material"; AND (iii) the additional term is not objected to by original offeror
unconscionability
-a part of contracts law generally (not just sales of goods) -empowers a court to refuse to enforce all or part of an agreement TESTS: 1) unfair surprise (procedural) and oppressive terms (substantive) are, 2) tested as of the time the agreement was made by the court
Service contract not CAPABLE of being performed WITHIN A YEAR FROM THE TIME OF THE CONTRACT (i.e., more than one year)
-specific time period, MORE THAN A YEAR → SOF applies -specific time, more than a year FROM DATE OF CONTRACT → SOF applies -*Example*: Joshua Radin sues the Duck Room for breach of an alleged January 15, 2011, contract to perform on December 24, 2012. The Duck Room files a motion to dismiss based on the Statute of Frauds. → This is w/in the SOF. It isn't how long the performance takes, it's whether the service can possibly be performed w/in a year; here, the date of the performance is more than a year after the date of the K -task (nothing said about time) → SOF does NOT apply
conditional acceptance
-terminates the offer -common law: rejects and becomes a counteroffer that can be accepted by conduct -UCC: rejects
a writing satisfies the SOF (other than article 2 SOF) if:
-the writing has been signed ONLY BY THE DEFENDANT, i.e., the person who is asserting the SOF defense -ALL MATERIAL TERMS TEST (who and what) -Example: "The law firm of Franklin & Bash hereby agrees to employ Harriet Miers as an attorney for three years at $200,000 a year." s/ Peter Bash for the firm. → this satisfies the SOF b/c it gives us all the information we need: the parties, what is expected of them, and only the defendant signed the writing -NOTE: if ONE person signs, it means the other didn't
Words of the Parties NOT in the Written Contract and the Parol Evidence Rule - Triggering Facts
1) final written contract 2) earlier words of ONE or BOTH parties
3 Step Process for dealing with Consideration:
1) identify the promise breaker 2) determine whether that person asked for something in return for the promise 3) look at the person trying to enforce the promise and determine what legal detriment that person sustained
Persons who lack capacity to contract:
1) infants → under 18 2) mental incompetents → lacks ability to understand agreement 3) intoxicated persons IF other party has reason to know
Things to look for when trying to find an agreement:
1) information about the initial communication (offer) 2) what happens after the initial communication (termination of the offer) 3) who responds and how she responds (acceptance)
Bilateral Contract
ALL other offers → usually offer is silent as to the method of acceptance
Pre-existing Contractual or Statutory Duty Rule - Common Law General Rule EXCEPTIONS
EXCEPTION: addition to or change in performance -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Conan then promises to pay Iron & Wine $5,000 if Iron & Wine will play "The Trapeze Swinger" instead of "Passing Afternoon". EXCEPTION: unforeseen difficulty so sever as to excuse performance EXCEPTION: 3rd party promise to pay -Example: Conan contracts with Iron & Wine to perform on his show for $15,000. Notwithstanding the contract, Iron & Wine refuses to play unless they are paid $20,000, not $15,000. Andy Richter promises to pay Iron & Wine $20,000. Iron & Wine performs. → Andy Richter's promise is legally enforceable.
Promissory Estoppel (detrimental reliance)
Elements: 1) promise; 2) reliance that is reasonable, detrimental, and foreseeable; AND 3) enforcement necessary to avoid injustice
Forms of Conduct
FIRST → Course of Performance SECOND → Course of Dealing THIRD → Custom and Usage
