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Legally enforceable agreement requiring (1) mutual assent (offer and acceptance), (2) consideration, and (3) no defenses to form.
Contract and agreement are not the same thing. Agreement is not a contract unless it is legally enforceable.
Not a contract but a way to avoid unjust enrichment. It is an equitable remedy that applies whenever contract law yields an unfair result. It is not limited by contract rules, but governed by equitable principals.
Requires an exchange of promises. Offer can be accepted in any reasonable way (promise/performance/starting performance/etc..). Assume offer is bilateral unless offer says it can be accepted only by performing.
Requires an exchange of an act for a promise. Offer that can only be accepted by performing stipulated act.
Arises when (1) offeror clearly indicates performance is only a matter of acceptance, OR, (2) offer to public clearly contemplating acceptance by performance.
FIRST STAGE OF AGREEMENT PROCESS: IS THERE AN OFFER?
- - Defined: Offer creates power of acceptance in offeree, To be valid, must be (1) an expression of a promise, undertaking, or commitment to enter contract, (2) definite and certain in its terms, (3) communicated to offeree.
- - Factors to consider; (1) language used, (2) surrounding circumstances, (3) prior relationship, (4) method of communication (ad?), (5) custom, (6) certainty of terms.
- - Requirements/Outputs contracts definite enough, Open price term only definite enough for UCC.
SECOND STAGE OF AGREEMENT PROCESS: IS THE OFFER STILL OPEN?
- - 4 ways in which offer terminates
- - (1) Lapse of time - lapses after stated term or reasonable time
- - (2) Revocation - direct or indirect (offeror engages in conduct and offeree is aware of conduct)
- - (3) Rejection - Offer terminates when offeree expressly rejects the offer, makes a counteroffer, or conditional acceptance. Effective on receipt. Diff term OK for UCC not common law.
- - (4) Death or insanity - If present before acceptance, offer terminated regardless of knowledge unless offer is irrevocable by nature
THIRD STAGE OF AGREEMENT PROCESS: HAS THE OFFER BEEN ACCEPTED?
- - Defined: acceptance of bilateral contract requires (1) offeree w/power of acceptance, (2) unequivocal terms of acceptance, and (3) communicate acceptance.
- - Art II and CL acceptance by promise, performing or starting to perform in bilateral. Unilateral contract requires completion of performance.
- - Improper performance = acceptance and simultaneous breach.
- - Mailbox Rule - Acceptance effective when mailed. Exceptions if (1) offer stipulates no acceptance until received, (2) irrevocable offers, (3) rejection, then acceptance, and (4) acceptance, then rejection unless rejection arrives FIRST and offeror detrimentally relies on it.
IS THE AGREEMENT LEGALLY ENFORCEABLE? DEFENDANT"S LACK OF CAPACITY
- - A D lack's capacity if he is (1) under 18, (2) intoxicated, or (3) mentally incompetent.
- - An incapacitated D can disaffirm the contract
- - P's capacity is irrelevant
- - Knowledge of lack of capacity is irrelevant
IS THE AGREEMENT LEGALLY ENFORCEABLE? DURESS
- (1) Physicial - Not enforced if entered into b/c of threat of physical harm
- (2) Economic - Requires (a) threat to breach existing contract unless party gets new deal, (b) other party agrees because he needs to get deal done, and (3) no other alternatives
IS THE AGREEMENT LEGALLY ENFORCEABLE? MISREPRESENTATION/NON-DISCLOSURE OF MATERIAL FACT
- - Even an honest and innocent misrepresentation can be a flaw in formation if it relates to material fact.
- - If party induces another to enter into a contract by using fraudulent misrepresentation or by using non-fraudulent material misrepresentation, the contract is voidable if justifiably relied on misrepresentation.
IS THE AGREEMENT LEGALLY ENFORCEABLE? MISTAKE
- (1) Mutual Mistake: Mistake by both parties is defense if (a) concerns a basic assumption on which contract was made, (b) material adverse effect on agreed upon exchange, (c) adversely affected party did not assume risk of mistake. (market value mistake doesn't count)
- (2) Unilateral Mistake: Generally not a defense against formation unless non-mistaken party knew or should have known about mistake.
- (3) Latent Ambiguity: Occurs where the expression of the parties' agreement appears perfectly clear at the time contract is formed, but because of subsequent facts, it may be reasonably interpreted two different ways. Rather than using objective test, cts look to subjective intent of parties
- - Neither party aware = no contract unless parties intended same meaning
- - Both parties aware = same as above
- - One party aware = Binding contract, based on what ignorant party reasonably believed ambiguous terms meant.
IS THE AGREEMENT LEGALLY ENFORCEABLE? ABSENCE OF CONSIDERATION
- - Consideration: Bargained-for legal detriment/benefit. Can be promise/performance/forbearance
- (1) Past consideration is irrelevant. Can't bargain for something that has already been completed
- (2) Adequacy of consideration is irrelevant
- (3) Contract modification - pre-existing duty rule (promise to perform existing duty is not consideration for modification). Exception if (a) new/different consideration promised, (b) pre-existing duty is owed to 3rd party, not promisor, (c) honest dispute as to duty, (4) unforeseen circumstances sufficient to discharge a party.
- (4) Pre-existing duty rule does not exist under Art II. Free to modify.
- (5) Part payment is consideration for promise to forgive rest of disputed debt. Not applicable if due and undisputed. requires controversy over debt.
- (6) A written promise to pay debt, even if collection is barred by S/L is enforceable, even without consideration
- (7) Promissory estoppel
IS THE AGREEMENT LEGALLY ENFORCEABLE? ILLEGALITY AT TIME OF AGREEMENT
- - If consideration or subject matter of contract is illegal at time of agreement, contract is void unless (1) P is unaware of illegality while D knows of illegality, (b) one party is not as culpable as the other, (c) illegality is for failure to obtain license when license is for revenue raising purposes rather than protection of public (i.e. liquor license)
- - If the ONLY purpose of the contract is illegal, the contract is voidable by a party that was (1) unaware of the purpose or (2) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude (i.e. murder).
IS THE AGREEMENT LEGALLY ENFORCEABLE? VOID AS CONTRARY TO PUBLIC POLICY
- (1) Covenant not to Compete: Ct will invalidate narrow one that operates as restraint on trade. Only enforceable if (a) geographical and time restraints are not unreasonable under the circumstances and (b) there is a need for the covenant.
- (2) Exculpatory Clause: Can eliminate liability for negligence but not for gross negligence or intentional torts
IS THE AGREEMENT LEGALLY ENFORCEABLE? UNCONSCIONABILITY
- - Agreement containing oppressive terms or unfair surprise that shocks the conscious. Determined at time of agreement. The fact that terms seem harsh later is irrelevant.
- - Substantive = unfair on its face (i.e. contract to be someone's slave)
- - Procedural = process by which agreement was reach is unfair (i.e. fine print or unequal bargaining power)
STATUTE OF FRAUDS
- - Process: (1) Do you need a writing, (2) Do you have satisfactory writing, AND (3) If no writing, is there an exception?
- - Acronym for contracts within SOF: She's a Fraud if she isn't between MY LEGS
- M - Marriage (i.e. prenup and postnup, not actual agreement to marry).
- Y - Year, can't be completed within 1 year (except lifetime contracts)
- L - Land (any transfer of land. Lease of 1 yr or less though is enforceable, even without writing)
- E - Executor (agreement by estate rep to use own funds to pay estate expenses)
- G - Guaranty (aka surety). This is where a person agrees to pay a debt if the debtor does not pay
- S - Sale of goods $500 or more (except S - Specially manufactured goods
- -----------------------------------------W - Written confirmation of an oral agreement between merchants
- -----------------------------------------A - Admission in pleading or ct that a contract for goods existed
- -----------------------------------------P - Partial payment or delivery made and accepted)
STATUTE OF FRAUDS: CONTRACT MODIFICATIONS
- - General Rule: SOF applies only if contract as modified (not original contract) falls w/in SOF
- - Under Common Law, contract requiring modification to be in writing is not enforceable yet is enforceable under Art II.
STATUTE OF FRAUDS: WHAT KIND OF WRITING SATISFIES SOF?
- - Memorandum Requirements: (1) ID the parties sought to be charged, (2) ID of contract's subject matter, (3) terms and conditions of agreement, (4) recital of the consideration, (5) ID and signature of party to be charged (or his agent).
- - Art II: Writing must contain (1) quantity term, (2) signed by party to be charged ("D," the party asserting SOF defense),
STATUTE OF FRAUDS: EXCEPTIONS
- (1) One-yr prong - Full performance eliminates need for writing
- (2) Land prong - Part performance eliminates need for writing. Need 2 of 3 things: (a) some kind of payment, partial or full, (b) buyer makes improvement to property, (c) buyer is in possession of real estate.
- (3) Art II exceptions - SWAP
- (4) If guarantor's main purpose is to benefit self, no need for writing (i.e.debtor owes creditor 1K for paint debtor bought to paint guarantor's house. Creditor alleges that guarantor orally agreed to pay 1K if debtor did not pay. In this case, no need for writing to enforce (except in NY. always need writing).
CONTRACT TERMS: WORDS OF PARTIES
- (1) Parole Evidence Rule: Evidence of prior or contemporaneous negotiations and agreements that contradict, modify or vary contractual terms are inadmissible if the written contract is intended as a complete and final expression btw/parties (parole problem requires writing)
- (2) Exceptions: (1) clerical error, (2) establish defense against formation (not trying to reform, trying to void completely), (3) explain intent to ambiguous terms, (4) to supplement a partially-integrated writing, (5) subsequent modifications (parole evidence rule does not apply to things after agreement is put in writing), (6) existence of a condition precedent to a contract, (7) consideration problems (like consideration in contract was never paid), (8) prior valid agreement which (by mistake) is incorrectly reflected.
CONDUCT OF PARTIES USED TO FILL GAPS IN CONTRACT
- - Listed in order of greatest to least importance
- (1) Course of performance - what parties have done under this contract
- (2) Course of dealing - what parties have done under their earlier contracts with each other
- (3) Usage of trade - what others in the trade do under similar contracts
ART II: SELLER"S WARRANTIES OF QUALITY IN SALE OF GOODS - EXPRESS WARRANTY
- - Seller is liable to buyer for breach of any express warranty the seller makes.
- - Seller makes express warranty if (1) statements of fact, promises and descriptions of goods exist. (i.e. "this watch is pure gold" or "this computer is guaranteed for two years"), or (2) seller uses a sample or model.
ART II: SELLER"S WARRANTIES OF QUALITY IN SALE OF GOODS - IMPLIED WARRANTY OF MERCHANTABILITY
- - If the seller is a merchant who deals in goods of the kind from their ordinary inventory (specialized knowledge of goods), then there is an implied warranty that goods are fit for their ordinary purpose.
- - serving food or drink for consumption on premises subject to this warranty
- - does not matter if merchant knew of defect or could not have found out about it.
ART II: SELLER"S WARRANTIES OF QUALITY IN SALE OF GOODS -IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
- (1) Buyer has a special purpose in mind, (2) Buyer is relying on the seller's skill and judgment to select suitable goods, AND (3) seller knows particular purpose for which goods are to be used.
ART II: SELLER"S WARRANTIES OF QUALITY IN SALE OF GOODS -LIMITATIONS ON WARRANTY LIABILITY
- (1) Seller can disclaim all implied warranties but not express warranties
- (2) Seller can limit a buyer's remedies for breach of any warranty if the limitation is not unconscionable AT THE TIME OF THE CONTRACT.
- (3) Seller's warranty liability only extends to natural persons in the family/household of the buyer, or who is a guest in their home if it reasonable to expect that such a person may use/consume/be affected by goods and he suffers a personal injury
ART II: SELLER'S DELIVERY OBLIGATION INVOLVING COMMON CARRIER
- (1) Shipment contract: Seller must only get the goods to a common carrier, and make reasonable delivery obligations under the contract (tender required docs and notify buyer of shipment)
- (2) Destination Contract: Seller must get the goods to the specific destination
- (3) Free On Board ("FOB"): If contract provided FOB followed by a city where SELLER is located then it is a shipment contract. If contract provides for FOB followed by a city where BUYER is located, the destination contract
ART II: RISK OF LOSS
- (1) When goods are damages and neither buyer or seller is to blame, who takes loss
- (2) If seller bears risk, must provide new goods for no additional cost. If buyer, he must still pay contract price.
- (3) Hierarchy for determining risk of loss: (a) agreement controls, (b) breaching party, (c) completed delivery obligation shifts liability from seller to buyer, (d) if non-carrier case and seller is merchant, ROL passes upon buyer taking physical possession of goods, if not merchant, seller bears ROL under he tenders (has goods ready for pick up and time and place specified in contract) the goods, (e) buyer has contractual right to return goods. If for resale, risk remains while in transit to return, if for personal use with return policy, no shift until buyer accepts goods.
PERFORMANCE OF CONTRACT: ART II SALE OF GOODS
- (1) Perfect tender rule: Seller must deliver perfectly conforming goods in right place at right time. If not done, buyer has right to reject goods or the option to accept imperfect tender.
- (2) Option to cure: W/in time originally allotted, cure by (a) notice of intent to cure, (b) making of new tender of goods which buyer must accept. (exception if seller thinks buyer will accept from past deals)
- (3) Installment Sales Exception: Perfect tender rule does not apply. Buyer can only reject if there is a substantial impairment that cannot be cured.
- (4) Acceptance = (a) buyer, after reasonable opportunity to inspect, indicates to seller that they conform or that she will keep them despite nonconformance, (b) buyer fails to reject w/in reasonable time of delivery, (c) buyer does anything inconsistent with seller's ownership
- (5) Implied Acceptance: If buyer keeps goods w/o objection and reasonable time to inspect.
- (6) Revocation - General rule is no revocation after acceptance unless defect substantially impairs value and (a) buyer accepts them on a reasonable belief defect would be cured and hasn't, OR (b) buyer accepts b/c of of difficulty discovering defects, or b/c seller assures conformance.
- (7) Checks are sufficient but seller may insist on cash and give buyer reasonable time to get cash.
PERFORMANCE OF CONTRACT: COMMON LAW CONTRACT
- (1) Substantial Performance: Performance does not have to be perfect. Substantial performance merely requires that parties not commit a material breach.
- (2) Factors to determine material breach are: (a) amount of benefit non-breaching party received, (b) adequacy of damages remedy, (c) extent of part performance by breaching party, (d) hardship to breaching party, (e) whether breaching party's behavior negligent or willful, (f) likelihood of breaching party's completing performance.
- (3) Timeliness usually not material breach unless contract specifies time is of the essence.
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: OTHER PARTY'S BREACH
- - Art II: If seller does not make perfect tender, buyer can reject all goods (not just non-conforming goods) and is excused from paying contract price
- - Common Law: Damages are available for any breach, but only a material breach excuses the injured party from having to perform. (NOTE - party who commits material breach may still recover in quasi-contract).
- - Divisible contract exception: Substantial performance determined on a per unit basis.
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: ANTICIPATORY REPUDIATION
- - Applies only if there are executory (unperformed) duties on both sides of bilateral contract. The non-repudiating party has four alternative options: (1) treat contract as totally repudiated and sue immediately, (2) suspend his own performance and wait until performance is due to sue, (3) treat repudiation as an offer to rescind and treat contract as discharged, (4) ignore repudiation and urge performance.
- - Operates same way as material breach
- - Example: Martha contracts to paint house for $50K payable after she finishes. She starts, I tell her I am not paying. Martha can stop performance.
- - Conduct can show repudiation as well.
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: LATER AGREEMENT BETWEEN PARTIES
- (1) Rescission: To be effective, each party must have some performance remaining under the contract. If one party is complete, there is no consideration for a promise to rescind.
- (2) Modification: Agreement subbing new contract for existing one
- (3)Accord & Satisfaction: Agreement in which one party to existing contract agrees to accept, in place of performance that he is supposed to agree from the other party, some different performance. Need different consideration
- (4) Novation: Agreement subbing new party for an existing party with consent of all parties
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: LATER UNFORESEEN EVENT
- - General Rule: If event makes performance impossible it may excuse party for non-performance.
- (1) Destruction of something necessary for performance
- (2) Death of incapacity of person essential for performance (objective) Remember special skills v. something everyone can do.
- (3) Supervening gov't reg
- (4) Frustration of purpose (usually buyer remedy). P rents J apt for Thanksgiving morning. P knows that J renting only to watch parade. Parade is cancelled is frustration of purpose b/c person contracted with knows of other party's purpose and later, unforeseen event frustrated purpose.
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: EXCUSE BASED ON THE FAILURE OF AN EXPRESS CONDITION
- (1) Defined: Contract language that does not create an obligation, but limits obligations by other contract language. Strict compliance required (look for "if," "so long as," provided," "unless")
- (2) Satisfaction Clauses - Means reasonable person would be satisfied unless matter of personal taste
- (3) Conditions precedent/concurrent/subsequent (a matter of timing)
- (4) NOTE - If person protected by condition fails to cooperate, condition is excused. Protected person can be estopped from using condition if he makes later statement not in accordance with condition and other party relies on the statement to their detriment
EXCUSE OF PERFORMANCE BASED ON LATER EVENTS: IMPRACTICABILITY
- A seller's duty to perform may be discharged where performance would be impracticable if nonoccurence of conditions giving rise to impracticability where a basic assumption on which the contract was made.
- Examples include, war, embargoes, crop failure, labor strikes...
REMEDIES: IN REM REMEDIES ("THE THING ITSELF")
- (1) Specific Performance: Equitable remedy available if money damages clearly inadequate. For real property, always available. For goods, only with art, antique or custom made. Not available for service contract but can prevent person from performing elsewhere.
- (2) Art II Right of Reclamation: Unpaid seller has no right to reclaim goods from buyer who hasn't paid unless (a) buyer was insolvent (mere economic hardship not enough) when he received goods, AND seller makes demand w/in 10 days buyer received goods
- (3) Entrustment: Can't reclaim from later BFP (no knowledge of rightful owner). Only remedy is to sue person entrusted w/property for conversion
- (4) Art II Right ti Request Assurance: If reasonable grounds for insecurity arise regarding performance, a party may, in writing, demand adequate assurance of performance. Until assurances received, party can suspend own performance.
REMEDIES: MONEY DAMAGES
- (1) No punitive damages (seen as punishment not compensation)
- (2) Liquidated Damages Clause: Valid if (a) damages hard to ascertain when contract formed, and (b) clause is a reasonable forecast of compensatory damages (usually, fixed figure amt no good).
- (3) Expectation/Compensatory: A sum that leaves injured party in exactly same position as full performance. At common law, Loss in Vale- Cost Avoided (original contract amt). For Art II buyer, Cover price - Contract price if in good faith, otherwise Market - Contract. For Art II seller, contract - resale if in good faith, otherwise contract - market) Remember buyer acceptance of non-conforming goods exception (value of goods expected - value of goods delivered) and "Lost Volume Seller Exception
- (4) Incidental damages: The cost of caring for/transporting goods after breach and cost of arranging a sub transaction. Includes ads, phone calls, etc...
- (5) Consequential Damages: Damages special to the particular P that are reasonably foreseeable to breaching party at time of contract (i.e. shaft case shuts down mill)
- (6) Mitigate - Can't recover damages you could have avoided w/reasonable effort.