Contracts - Set 1
A Party's Misrepresentation of a Material Term Renders Contract Unenforceable
Although the two parties to a contract ostensibly give the requisite mutual assent, where the assent of one party is arrived at by a misrepresentation as to a material term by the other party, the contract will not be enforced.
Offer and Acceptance in General
An OFFER is an open call to anyone wishing to accept the promise of the offeror and generally, is used for products and services. ACCEPTANCE occurs when an offeree agrees to be mutually bound to the terms of the contract by giving CONSIDERATION, or something of value like money, to seal the deal.
Contracts Formed Under Undue Influence and an Unconscionable Action can be VOIDED
**Any contract that is formed because of undue influence can be VOIDED.** In determining whether a contract was formed as a result of undue influence, two key factors are: 1. unfair persuasion, and 2. a special relationship, such as that between parent and child. **Any contract that is formed because of an unconscionable action can be voided.** The concept is codified in section 2-302 of the UCC, and is applied to contracts NOT involving the sale of goods. Generally, the elements needed to arrive at a finding of unconscionability are: 1. unequal bargaining power, and 2. a one-sided contract.
Post-Benefit Promise is Enforceable IF Promisor Receives Material Benefit That is Not Merely Sentimental
A PROMISE MADE in exchange for a PREVIOUSLY RECEIVED BENEFIT may be enforceable if it was a material benefit received by the promisor and not someone else. Examples: 1. Post benefit promise - You took great care of my mom before she was moved to a nursing home, so I am going to buy you a house. The mother received the benefit of elder care, for which the daughter was eternally grateful. However, as the promisor, she received no "material" benefit. In fact, she received no benefit at all. Therefore, her promise is NOT ENFORCEABLE. Note that the daughter's promise was offered as a sentimental gesture of the care her mother received. At best it would seem gratuitous. Even still, it would be a promise that is NOT ENFORCEABLE. Recall that gratuitous promises are ones in which the promisee has neither promised nor given anything in return to the promisor, leaving the consideration requirement unsatisfied. As a result, gratuitous promises are NOT ENFORCEABLE. 2. Post benefit promise - Steel Company VP strikes a great coal deal and the CEO promises to reward him with a directorship. Coal was delivered on time as agreed to in negotiations, but the steel company filed bankruptcy and could not pay the contract. The steel company materially benefited from the deal NOT the CEO personally. Therefore, his promise to the VP is NOT ENFORCEABLE. Note that it is immaterial whether the coal company may have a cause of action for breach of contract. This is not the point of concept in this scenario.
To Affirm or Ratify a Contract - From Minor to Age of Majority
A minor can affirm his contract after reaching the age of majority for the full amount or for a lesser sum. Only the amount affirmed after the age of majority is enforceable. With some exceptions, a contract made by a minor is voidable. The minor, in other words, may avoid the legal liability under a contract. Upon reaching the age of majority, a minor may affirm or ratify the contract and therefore make it contractually binding on him.
Unilateral Offer/Contract - Promise to Perform Not Required Offer Revoked Upon Death of Offeror
A unilateral offer is accepted by performance, not a return promise. A unilateral contract is created when the offeror requests acceptance of the offer by the performance of an act RATHER THAN by a promise to perform the act. The offer is accepted ONLY when the offeree performs the requested act. An offer is revoked by operation of law upon the DEATH of the offeror.
Gratuitous Promise - Promisee Lacks Consideration
An agreement without consideration is UNENFORCEABLE. Gratuitous promises are ones in which the promisee has neither promised nor given anything in return to the promisor, leaving the consideration requirement unsatisfied. As a result, gratuitous promises are NOT ENFORCEABLE. Example: While on a business trip, a man's expensive sports car was stolen and taken for a joy ride by his neighbor's teenage son. While backing out of the driveway, he hit an elderly neighbor that was taking his daily stroll. When the man found out, aside from other legalities, he promised the elderly man he would pay for all his medical expenses because he felt so bad about what happened. The elderly man recovered well, but his medical expenses were never paid by the man as promised. The man's promise was gratuitous and is NOT ENFORCEABLE.
Firm Offers - By Merchant Available ONLY to Manufacturers
An offer by a merchant to sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable (even for lack of consideration) during the time stated (or if no time is stated for a reasonable time, but in no event exceeding three months). If these elements are met, the offer is a firm offer. Firm offers are only available to manufacturers, and those who extend such firm offers should be prepared to perform upon acceptance during the specified period, negotiations and puffery notwithstanding.
Unilateral Contract - No Revocation with Substantial Performance and Reliance
An offer for a unilateral contract cannot be revoked once the offeree has made a substantial start on performance of the requested act in reliance on the offer.
Modification - Enforceable on Assent of Both Parties When Unintended Circumstances Arise Adjustment Must be Fair and Equitable Assessing Consideration and When a Preexisting Duty Exists
At common law, courts will not enforce one party's demand for additional performance from the other party due to lack of consideration. This is known as the preexisting duty rule. Modern courts, however, permit such modification of "additional performance" if there is a mutual modification to the contract. As such, mutual modification constitutes consideration. Example: Two parties to contract had different interpretations of the time at which payment was to be made in accordance with contract terms. In negotiating the dispute, both parties agreed to modify their performance, one party paid the original contract price and in consideration, the other party performed under the modified terms. The mutual modification constitutes consideration, so a court would enforce the modification. Note that in contract law in the United States, the preexisting duty rule is a legal concept relating to when the performance of a legal duty is classified as consideration. The preexisting duty rule has significance when the consideration asserted in support of another party's promise is something that the asserting party is already obligated to do. Recall that, consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration.
Advertisements - Invitation to Accept a Unilateral Offer
Generally, advertisements are considered invitations for offers rather than offers themselves. However, where an advertisement invites acceptance by performance rather than a promise for performance (as in the case of reward offers), the advertisement is considered an offer for a unilateral contract, which will be binding on the offeror upon the offeree's acceptance.
Advertisements - Invitation to Accept a Unilateral Offer
Generally, advertisements are considered invitations for offers, rather than offers themselves. However, where an advertisement invites acceptance by performance WITHOUT further communication (as in the case of reward offers), it may constitute an actual offer. A notice exhibited as an intent to enter into a contract that invites acceptance by performance is sufficient to serve as an offer. If it requests the performance of an act as acceptance of the offer, the notice is a UNILATERAL OFFER, which does NOT require a promise to perform from the accepting party.
Disaffirmance - Contracting with a Minor
Minors may form contracts, but their obligations are VOIDABLE. DISAFFIRMANCE is accomplished by words or deeds that objectively signify the election to avoid liability. Disaffirmance can occur prior to performance or even afterwards. UNTIL THE DISAFFIRMANCE, THE CONTRACT IS BINDING. Typically, when a minor disaffirms AFTER PERFORMANCE, she must restore any goods or benefits still in her possession. If the goods have been damaged or have depreciated, the RESTITUTION obligation extends no further than returning them "as now." A minor who receives SERVICES is under NO OBLIGATION TO MAKE RESTITUTION. However, the only EXCEPTION is where the minor has received NECESSITIES such as food, shelter, clothing, or medical attention. While a minor may disaffirm a contract for necessities, she will remain liable for the reasonable market value of any necessity that cannot be returned in "as received" condition.
Disaffirmance - Contracting with a Minor
Minors may form contracts, but their obligations are VOIDABLE. Disaffirmance is accomplished by words or deeds that objectively signify the election to avoid liability.
Bargained-For Exchange - Sufficient Consideration Promise Not to Pursue Claim Held in Good Faith is Enforceable
Modern courts uphold as legally sufficient consideration the promise not to pursue a claim that is either reasonable or objectively unreasonable but held in good faith. A bargain is an exchange of promises, acts or both, in which each party views his promise or performance as the price of the other party's promise or performance. The general rule is that, if there is consideration, then the "adequacy of the consideration will not be reviewed". What this means is that, as long as the contract is not "unconscionable", the courts will not consider whether a bargained for promise or performance is equal in value to the counter promise or performance. Essentially, the courts believe that the parties to the contract are in the best position to determine its fairness. See Batsakis v. Demotsis, 226 S.W. 2D 673 (Tex. 1949).
Oral Modification to a Bilateral Contract is Enforceable Quantum Meruit Value When No Contract Amt Stipulated
Oral modification of an original contract between two parties is enforceable, because it is supported by bilateral consideration (e.g. each party agreed to accept a lesser performance from the other) and because a written contract may be modified by an oral agreement. Note that it is true that a court could determine the value of a contractor's services in quantum meruit, which is only a potential remedy rather than a basis for liability. quantum meruit is a reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract.
Bargained-For Exchange - Consideration is Bidirectional No Enforcement of Contract Where Consideration Occurred BEFORE the Promise
The concept of bargained-for exchange suggests that EACH party to the transaction is motivated to make a promise OR complete a performance by the prospect of receiving a promise or performance from the other party in return. Traditionally, where the inducement for a party's promise was a PAST EVENT OR BENEFIT, such past consideration was NOT sufficient to render the party's promise enforceable. If there is no bargained-for exchange for a promisee to satisfy by performance, he cannot enforce a promise against a promisor if the consideration occurred BEFORE the promise. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Example: A vacationer's suitcase flew off the luggage rack while crossing a bridge and was caught momentarily in the web of support lines under a bridge, and before it could fall into the stream, a local resident of the area who was behind the vacationer on the bridge, reached under the bridge and retrieved the suitcase. "I have a ticket to the state lottery in that case. If I win the lottery with that ticket, I'm going to give you $500!" the vacationer said to the local resident. The vacationer exchanged information and retrieved his luggage. Later in the week he learned he indeed won the lottery and reached out to let the local resident know he could expect the $500. Unfortunately before that could happen, he was in an accident and suffered brain damage that rendered him legally incompetent. His legal guardian was contacted on the matter and she refused to pay. A claim was ensued, and under common law, the court ruled against the local resident because consideration of saving the luggage occurred BEFORE the promise to pay him from lottery winnings if he won. The vacationer's promise was a past event or benefit, and such past consideration was not sufficient to render his promise enforceable. Because the vacationer had not asked the local resident to save his luggage, there was no bargained-for exchange for the resident to satisfy by performance. Therefore, he cannot enforce the promise, because the consideration (saving the luggage) occurred BEFORE the vacationer made his promise.
Contract Formation in General 1. Effective on Receipt: Offer, Rejection, and Revocation; 2. Effective on Dispatch: Acceptance a) Traditional vs Modern View of "Mailbox Rule"
There are four basic contract formation moves, and it is important to know when each becomes effective. Three of the basic moves--offer, rejection and revocation--are effective on receipt. The fourth basic move--acceptance--is effective on dispatch. Note, if acceptance is dispatched prior to the attempt to revoke an offer a contract does exist. Traditionally, the "mailbox rule" governed when acceptance is effective. For an acceptance to be effective on dispatch, the traditional rule required that the offeree send the acceptance either by a medium expressly authorized in the offer or, where the offer says nothing about how the acceptance should be communicated, by the same medium used to send the offer. Modern courts view an acceptance dispatched by any reasonable means as effective where the offer does not specify the medium to be used.
Contract Modification
Traditionally, an agreement to perform a pre-existing duty is not valid consideration. Therefore, a modification of an existing contract where only one party changes his obligations may fail for lack of consideration. Contracts for services are governed by the common law. However, following the merger between law and equity, the common law began to recognize equitable modifications despite lack of new consideration. Such modifications would be recognized IF: 1. the party requesting the modification had made a good-faith attempt to perform his contract duty, and 2. the party met with unforeseen and unforeseeable difficulties, which threatened substantial hardship unless an adjustment was made. If both of these factors were present, a concession by the other party would be binding, and the other party would be equitably estopped from later seeking to avoid honoring it by claiming a lack of consideration.
Modification - Enforceable on Assent of Both Parties When Unintended Circumstances Arise Adjustment Must be Fair and Equitable
Traditionally, one party's demand for additional performance from the other party to an existing executory contract could not be enforced unless BOTH parties agreed and there was consideration to support the modifications. A modern minority of courts will enforce a modification if both parties assent and there are unanticipated circumstances that have arisen, making some adjustment in performance fair and equitable.
Unilateral Mistake - When Rescission is Permitted (Modern Approach)
Traditionally, one party's unilateral mistake as to an element of the contract would justify rescission only if the other party knew or reasonably should have known of the mistake and took advantage of the mistaken party's error. A modern approach to unilateral mistakes permits the mistaken party to rescind if: 1. the mistake goes to a basic assumption of the contract; 2. the mistake would impose an unconscionable hardship on the mistaken party; and 3. the hardship to the mistaken party from enforcement of the contract outweighs the detriment to the non-mistaken party caused by rescission.
Order or Other Offer To Buy Goods "For Prompt or Current Shipment" - Conforming and Non-Conforming Goods
Under UCC Section 2-206(b), an order or other offer to buy goods "for prompt or current shipment" will permit ACCEPTANCE either by a prompt promise to ship or prompt shipment of conforming or nonconforming goods. If the seller ships nonconforming goods as a means of acceptance under UCC Section 2-206(b), the shipment will be considered both an acceptance and a breach of the contract. In order for a seller or shipper to avoid being held in breach, the shipment of nonconforming goods will not constitute an acceptance if the seller or shipper "seasonably" notifies the buyer that the shipment is offered only as an accommodation to the buyer.
Offer and Acceptance Between Merchants - Change in Terms
Under UCC section 2-207, where both parties are merchants and there is an acceptance which varies from the terms of the offer, the offer is deemed accepted and the new terms will be incorporated into the newly formed contract unless: 1. the offer was expressly limited to its own terms; 2. the offeror objects within a reasonable time; or 3. the new terms "materially alter" the contract
Mutual Promises - Requirements Contract
Under the UCC, a requirements contract is a contract in which one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party. Example: A prune preserves manufacturer entered into a contract with a fruit grower. The contract provided that the manufacturer would purchase and the fruit grower would supply all of the manufacturer's requirements for prunes for the next five years at a specified price per ton reflecting the most recent market price.
Modification - Enforceable on Assent of Both Parties When Unintended Circumstances Arise Adjustment Must be Fair and Equitable
Under the UCC, contracts can be modified in good faith.
Disaffirmance - Contracting with a Minor
Under the modern law of most states, an "infant" or MINOR, that is, a person under the age of eighteen (18) - may enter into a contract; however, barring certain limited exceptions, the contract is VOIDABLE at the option of the minor. The minor may, however, RATIFY the contract upon reaching the age of majority. Thus, a minor who enters into a contract has the power to DISAFFIRM the contract. Upon exercising the right to disaffirm a contract, the minor is obligated to return to the other party any goods received under the contract.
Mutual Promises Must Follow with Mutual Consideration to be Enforceable Distinguishing a Gratuitous Promise and the Enforcement of a Promise Based on Consideration Already Received
When parties make mutual promises to each other, there must be consideration to support each promise to make the agreement enforceable. In the usual situation, the mutual promises supply consideration for each other. Example: Party A promises to pay money to party B, and party B promises to transfer title of his used car to party A. A's promise to pay money is consideration for B's promise to transfer title, and vice versa. Difficulties can arise when one party transfers something of value to the second party before the second party makes a promise (if ever), thereby having the effect of a "gratuitous promise." Note however, that Modern courts will enforce promises based on consideration already received to the extent of the benefit received.
Post-Benefit Promise is Enforceable IF Promisor Receives Material Benefit That is Not Merely Sentimental Pecuniary Value Is Not The Only Measure Of Legally Sufficient Consideration
Where a promise is made for a benefit that has already been received, the conventional wisdom is that the promise is enforceable if: 1. the benefit received was MATERIAL and not merely sentimental, and 2. the PROMISOR is the person that RECEIVED the material benefit. Example: As lifelong friends, and in consideration of many years of great deeds bestowed to the elderly parents of the Benefactor who lived in a different state and rarely around to care for her now deceased parents, the Benefactor contracts "I hereby agree to purchase for my friend, in her name, the house described in addendum number one. This agreement is made in consideration of my friend's 'comfort and affection' during the past years towards my parents." The friend also signed the instrument on a line following the word "Accepted." Thereafter, the nephew seized control of the family empire, confined his aunt, the wealthy but mentally ailing benefactor, to a sanatorium, and (as his aunt's conservator) disavowed the agreement between her and the friend. In most jurisdictions, the friend's "comfort and affection" clause would NOT be regarded as sufficient consideration for the benefactor's promise because the friend did not give the comfort and affection in exchange for the promise. Also note, although it is true that "comfort and affection" cannot be measured in terms of pecuniary value, pecuniary value is not the only measure of legally sufficient consideration. For example, if a beneficiary saves the life of a benefactor, the value of saving her life is materially sufficient to operate as consideration for the benefactor's promise to buy her a house, even if the lifesaving act itself has no pecuniary (monetary) value.
Unilateral Mistake - When Rescission is Permitted
Where the non-mistaken party knows or should have known of the mistaken party's unilateral error, and takes advantage of it, the mistaken party is entitled to rescind.