Contracts Course Outline

A. Types of Ks 1. Express or Implied a. Express is statemts of mutual assent; willingness to enter into a K b. Implied is no statements; conduct 2. Bilateral, Unilateral or Code a. Code is sale of goods & no bi/uni distinction b. Bilateral formed w/ mutual promises of parties, perf. of both fully executory c. Unilateral promise 1 side & fully executed perf. the other (K no formed until fully executed 1 side) 3. Telling if Bilateral or Unilateral a. Unilateral if offer warns only accept by act or if public offer b. Bilateral always if asks for return promise c. Offer indifferent (can't tell if promise or perf. requested) MAJ it's bilateral B. Offer: commitment communicated to identified offeree & containing definite terms 1. Commitment: reas. person hearing words under these circum. believes speaker intends to enter into K (OBJECTIVE) (Public ad to identified offeree, 1st 10, is an offer) -> Code's way of objectively determining is course of dealing - worst is actual words used 2. Communicated to ID'd Offeree (ACTUAL KNOWLEDGE) -> Another can tell him; public offer accepts & is ID'd at same time 3. Containing Definite Terms: must address s/matter of K w/ certainty to be valid a. Real Estate (desc. & price) b. Goods (quantity, except offers for total requiremts based on past hx or offers for total outputs are based on last yr output or most mfrs) c. Services (term of e/mt by task or time, unless not stated then at will) -> All other material terms supplied by ct, but if offer tries to address material term, must do so w/ certainty or offer is INVALID 4. Limits on Terminating Offers a. Merchant Firm Offer Rule: Merchant who puts offer in writing & it says will hold open Xtime or indefinitely (Rrrevocable for time stated but not open more than 3 mos. w/o consideration b. Option K (like a mini-K): consideration to hold open or consideration substitute; substitute when offeree detrimentally, reas. & foreseeably relies on offer (sub bid) (detrimental reliance or prom. estoppel used) c. Offer to Make Unilateral K: to give time to perform. Reasons can't terminate (best to worst) (1) stay open reas. time if perf. begun (2) reliance by offeree - supplies (3) doctrine of divisibility - reas. time to comoplete any "in works" (4) implied bilateral prom. to complete by commencing perf. 5. Ways to Terminate b/4 Acceptance a. Revocation by Offeror (1) Express w/ ID'd offeree efftv when receives it (not read or actually knows of) w/ delivery to offeree, anyone offeree's control Express w/ public offer revocation same or comparable medium as offer (2) Implied when offeror does act preventing perf. and when offeree learns of act from reliable source b. Rejection by Offeree (refusal or counteroffer) (1) Express when offeror receives or anyone in his control (no actual knowledge); can never be revived (2) Implied (conduct) letting offer lapse past time stated or reas. time c. Operation of Law: s/matter destroyed b/4 accept; supervening illegality; death or incapacity of either offeror or offeree terminates OFFER C. Acceptance 1. For UCC Offer: by promise or perf. (no distinction bet. uni/bi) a. If perf. takes time, must send notice perf. occurring; can ship conforming or non-conforming (K and breach same time) b. EXCEPT: non-conforming not acceptance if S says sending as accommodation, unless B takes & uses them 2. For Unilateral Offer: a. Perf. of requested act & must notify performed if offer requires or wouldn't otherwise come to offeror's attn b. Public offer to determine perf. look to objective intention of offeror; what reas. person would think offeror wanted, to accomplish the objective (eat/buy sundaes) 3. For Bilateral Offer (Express or Implied Bilateral Promise in Return) a. Express Bilateral Acceptance: a commitmt communicated using correct method (offer requiremts or same way came or reas. way) -> reas. means as speedy or faster as offer & as legally dependable as way offer presented -> Mailbox: efftv sent if properly addressed, delivery prepd EXCEPT: (1) Offer requires receipt of acceptance (2) *Receipt b/4 end of option K (3) Accept then reject-mailbox applies unless offeror gets rejection 1st and acts on it (4) Reject then accept-no mailbox & 1st there prevails b. Implied Bilateral Acceptance (conduct) (1) doing conduct offer requires (yellow hat; except not silence) (2) accepting benefits of unsolicited goods (MAJ) (3) starting perf. of act promised to do - creates implied prom. you accept & will complete D. Counteroffers (Code & Non-Code) 1. Non-Code: acceptance must mirror; any new/different is counteroffer (except mere inquiry) 2. Code: counteroffer only: a. when non-conforming sent as accommodation or b. if acceptance expressly condtn'd on new terms, to add them in: (1) if consumer 1 party the addtn is separately accepted/rejected (2) if just merchants automatic unless offer said ltd to its terms, offeror expressly rejects them, or new term materially alters K E. Consideration (each party makes 1 consideratn supported prom.) 1. 3 Tests for Consideration: a. Prom. must induce current perf. in exchange (bargained for exchange) b. Detriment from Promisor (offering detriment) c. Promise binding, not illusory (mutuality of the prom.) 2. Promise Induced for Current Perf. in Exchange (giving $ or conduct) a. Promises based on moral feelings FAIL b. Promises based on past acts & don't ask anything currently in exchange FAIL, EXCEPT: (1) debt barred by technical defense, new written promise to revive enforceable (amt stated up to debt) (2) Promisor requested act & promisee perf. w/ expectation of paymt, most enforce payment 3. Detriment From Promisor (detriment to Promisee) Doing something promisor not otherwise required to do or NOT doing something promisor has rt or good faith belief had rt to do (can be a legal disadv. - not smoking) a. Signif. MIN says if no detriment from promisor look for benefit to promisee b. NOT a detriment if Promisor had PRE-EXISTING duty to do it EXCEPT: (1) unforeseen difficulty so severe could walk away but promise to do anyway (John Denver) (2) Good faith exception to disputed duties (misunderstand & new prom. to compromise; Denver $10,000 pymt; bona fide good faith dispute) 4. Binding, Not Illusory Promise: can't have unrestricted or total discretion on whether to perform (mutuality of obligation) a. NOTE: Requirement & Output promises look illusory but not b/c Doe imposes reas. quantity requirement, nor are satisfaction conditions b/c must be SUBJECTIVE good faith dissatisfaction 5. Consideration Substitutes (MAKE SURE PROMISE DOESN'T ALREADY HAVE CONSIDERATION FIRST!) a. Code Consideration Substitutes -> Merchant's firm offer to keep open enforced up to 3 mos. unless consideration then for time stated -> For CODE, don't need consideration for modificatn IF MADE IN GOOD FAITH b. Common Law Consideration Substitutes (1) MIN accept Ks under seal w/o consideration, or (2) Prom. Estoppel: if promisee detrimentally, reas. & foreseeably relies on promise, it's enforceable though no good consideration (buy car based on prom. to pay when your thumb smashed) -> Make sure not good consideration 1st b/4 you apply these F. Defenses to Formation or Enforcement of K (best to worst) S U M F I G (St/Frauds, Uncon, Mistke, Formatn, Incap, Garbage) 1. Formation Defense (no offer, acceptance, consideration) 2. Statute of Frauds (tangible evidence for Ks easily imagined or very valuable) (K UNENFORCEABLE, NOT VOID) a. Tangible Evidence Required (1) Part/full perf. by either party for any of these (don't do for nothing; satisfied up to extent perf.), or (2) Writing that ID parties, s/matter, consideration, signed by party to be charged (written on anything) b. Kinds of Ks Protected ("MY LEGS") (1) Ks where marriage is the consideration/reason for the K (2) Suretyship K (ans. for another's debt) BUT to require a writing for SofF must be collateral promise (to ans. for primary) & can't be for benefit of the surety (3) Real Estate Ks (including mtg or easemt or lease longer than yr) to enforce requires writing or part/full perf., but part perf needs poss'n + improvements. Real est. K in writing so agent's authority must be in writing (Equal Dignity Rule) (4) Ks can't perform w/in 1 year (FROM DATE K FORMED). If any way could have been completed w/in 1 year, though not, writing not required: (a) Lifetime Ks could die tomorrow so no writing required but MIN require b/c always fails (b) And Excusable nonperf. w/in 1 year isn't complete perf. for the rule (3 yr job K says can end w/ 30-day notice) (5) Sale of Goods $500 or more: writing or Code also accepts: (a) commence mfr special goods per oral request (b) merchant's confirming memo per oral order & no objtn w/in 10 days, or (c) admit to K existence in judicial context 3. Incapacity (lack of K'l capacity) a. VOIDABLE by 1 lacking cap. & can expressly or impliedly affirm if capacity ceases but always obligated for necessaries (based on living standard) b. Infants under 18; adjudicated mental incompetent totally VOID; unadjudicated can affirm if lucid; intoxicated MAJ require other to know to make K VOIDABLE 4. Garbage Defenses (illegality, fraud, duress) a. Illegality: s/matter illegal totally VOID; purpose illegal VOIDABLE by innocent party b. Fraud: in the execution (don't know K) totally VOID; in the inducement (deceived as to s/matter) VOIDABLE by defrauded party - can enforce it wants c. Duress: personal duress VOIDABLE; economic duress no defense unless party caused himself 5. Unconscionability: At formation terms unfair/oppressive to 1 party (Ct decides) -> Blue Pencil Rule: can do anything to make fair, sever or rewrite clause or void entire K 6. Mistake/Ambiguity a. Mutual Mistake: VOID K - no meeting of minds (usually s/matter or quality of s/matter doesn't exist) b. Unilateral Mistake: 1 party mistaken as to MATERIAL fact of K; no defense for uni mistake unless other knew/should have -> Can be unilateral mistake as to perf. (air condtnr), value or person w/ whom you're dealing c. Ambiguity in K Term: material term susceptible of more than 1 meaning (fruit); No K unless both intend same meaning or only 1 knows there's ambiguity (enforced non-knowing 1's way) G. Non-Party Rights (3P Ben'y/Assignmts/Delegation) 1. General: -> non-party time formed is 3P ben'y; non-party later is assignmt or delegation -> NON-PARTY RTS ALWAYS DERIVED SO DEFENSES OK 2. 3P Beneficiary (look a promise at a time) (3P ben'y of which promise?) 5 RULES: a. Intended or Incidental Ben'y (1) Incidental no rights, just benefit (2) Intended gets rights; intended b/c ID'd in promise, perf. runs to you & ben'y/promisee relationship supportg intention to benefit b. Donee or Creditor Ben'y (1) Donee gets as gift (2) Creditor when promisee owed debt & using promisor's perf. to satisfy c. Ben'y can enforce promise way it existed when rts vested -> Promisor/ee can change, or rescind promise until vests -> Vests when ben'y learns & assents (words/conduct), but promise can reserve power in promisee d. Promisee can also enforce promise against promisor (MAJ) e. Creditor ben'y can sue promisee on underlying obligation or Promisor on 3P promise 3. Assignment (if assign whole K, that's assignmt of rts & delegation of duties) -> Obligor (owes perf.), Assignor, Assignee a. Is it Assignable? Not if: (1) K prohibits EXCEPT privilege, not power to assign destroyed so assignmt valid, but Assignor breached and totally enforceable under Code (no breach) (2) Law Prohibits (make sure it's an ASSIGNMENT 1st!) (3) Pers. Services K where assignmt = substn'l change in perf., or (4) Substant'l change in perf. b/c of assignment (requirements Ks suspect or change in time/place of perf.) b. Was it Properly Assigned? -> Need desc. of rt assigned & words of present transfer (even if perf. for future) -> Warranting to assignee assignable & enforceable (Assignee can sue for W breach) c. Obligor must perform to Assignee, Assignee can enforce, Assignor no rt anymore d. Problems: (1) Assignor dealing w/ Obligor -> if b/4 Obligor gets notice, assignee v. assignor for breach W -> if after notice, assignee v. Obligor, whose stuck paying twice (2) Assignor multiple assignments (a) Are any Gratuitous (automatically revoked unless writing delivered, token chose, or estoppel (detrimentally, reas. & foreseeably relied) (b) Otherwise 1st w/ valid unrevoked assignment unless subsequent w/o knowledge of others gets 1) pd, 2) judgment, 3) token chose from Obligor or works 4) novation w/ Obligor (4 "horsemen" of assignment) 4. Delegations (of duty) Delegator (of duty), Delegate (does duty), Obligee (gets perf.) a. Is it Delegable? NOT IF: (1) K prohibits (works here!) (2) Prohibited by law (3) Pers. Services (unless routine) (4) Substantially changes char. of perf. (output Ks or time/place change) b. No particular form for delegation (unlike assignment) c. If delegate for consideration, Obligee can force delegate to perform (delegate makes promise to Delegator to perf. to original Obligee & Obligee now 3P ben'y of their K) H. Conditions (must be EXCUSED or SATISFIED) 1. Types: a. Condition Precedent: must occur b/4 duty matures b. Condition Concurrent: happens same time duty performed c. Condition Subsequent: after duty matures, then discharged 2. Express Conditions (1 of 3 expressed in K) Problems: a. True Condition: event outside control either party b. Condition & Covenant of 1 Party: party has some control over event so covenant good faith to occur (house buy) c. Condition & Covenant of Both Parties: both have some control & covenant of good faith to bring about event (portrait if satisfied) 3. Implied (Constructive Conditions) Constv condition if: a. 1 party's perf. precedes the others it's constv condition to other's b. 1 party's perf. takes longer than other's, longer constv. condition to shorter c. Simultaneous, instantaneous performances, both constv conditions concurrent to other 4. Excuse of Condition: Excused if party to perform: a. Fails to cooperate or prevents occurrence of condtn b. Anticipatorily Repudiates the K (1) All condtns on perf. leave (other side doesn't have to perf. & can sue immediately for breach) (2) If repudiates b/4 other side has perf., repudiation accelerates the breach & makes breacher's duty mature & performable immediately (3) If repudiates after other side performed but b/4 breacher's duty has matured, must wait to see if they retract -> IF NOT SURE REPUDIATING? Can (not MUST) make written demand for adequate assurances & consider a repudiation if no reas. time response c. Voluntarily Disables Themselves (prospective inability to perform) -> Prevent perf. by anticipatory repudiation by conduct; excuses all condtns & accelerates breach if b/4 other side performed d. Estoppel -> B/4 condtn occurs, says will perf. anyway even if doesn't occur and other party changes position b/c of statement (cancel other house sale Ks) e. Waiver -> After supposed to occur says will perform anyway; waived period regardless if changed positions 5. Satisfying Unexcused Conditions a. Completely: must happen perfectly for express condtns, or single deliveries of goods under Code b. Substantial Satisfaction: all other constv condtns (so substan'l OK unless expressly stated otherwise) c. Doctrine of Divisibility: as substantially complete each 1 get paid -> After conditions excused or satisfied, are duties discharged or absolute? I. Discharge of Duty (no perf. required & no breach) F A N F I M M I 1. Modification to K: discharges duties under 1st K (and UCC modiftns w/o consideration OK if made in good faith) 2. Mutual Rescission (cancellation or release); can be for all or some of K duties 3. Accord & Satisfaction: a. Later agreement (accord) used to resolve disputed duties under the K, compromise b. MAJ states also require 2nd agreement fully performed (satisfaction) to discharge duties under 1st -> If not, can try to enforce old duties as understand them -> Ck tender for disputed amt is accord & satisfaction 4. Novation: (IF UNILATERALLY DONE THAT'S DELEGATION OR ASSIGNMENT) -> Substitute party to K by all 3 agreeing; new party steps in shoes completely 5. Doctrine of Impossibility: OBJECTIVELY impossible to perf. (no reas. person could) a. EXAMPLES: (1) s/matter destroyed (2) death/ill pers. performer (3) failure of sole or agreed supply source (4) supervening illegality b. UCC Supplements Impossibility (Casualty to ID'd Goods b/4 Risk of Loss Passes) -> K either describes the goods or Seller designates them; Risk of Loss passes when S completes his perf. (1) Face to Face: (a) Merchant-S risk passes when B physically gets (b) Non-Merchant S risk passes w/ tender of delivery (notify B goods available & keeping available reas. time) (2) Carrier: FOB (free on bd) place is price to place; FAS (free alongside) port is price to port; CIF (cost ins. freight) place is to that place; C&F (cost & freight) place is to that place -> Risk passes when S delivers to carrier & makes reas. trans. K; destroyed b/4 to carrier all duties discharged; after to carrier B's loss -> EXCEPTION: FOB place other than S's location (Destination K) destroyed b/4 to place all duties discharged (3) Partial Casualty Destruction: B can treat K as terminated (all duties discharged) or take w/ price adj. 6. Impracticability (Judged SUBJECTIVELY these parties/this K) Unforeseen event so severe & unassumed, unfair to require perf. as written. Duties disch. to extent impracticability permanent; if only temporary MAJ suspends perf. til ends then must promptly perform (construction) 7. Frustration: can perform fine but reason to is gone (real purpose of K frustrated by some supervening event) 8. Failure to Excuse/Satisfy Condition Subsequent (ins. policy required timely report following incident) J. Performing Absolute Duty (not discharged) (WAYS SAME AS SATISFYING UNEXCUSED CONDITION) 1. Completely required for: a. All express terms (room size exactly) and b. Implied terms for single delivery of goods under Code -> BUT: S can cure up to perf. time or have addt'l time if thought tender going to be acceptable (b/c w/in industry norm) 2. Substantial Perf.: all non-expressed or non-single delivery K terms 3. Doctrine of Divisibility: substant'lly completing each unit K. Remedies for Breach 1. Non-Code a. Basic Remedy: put non-breaching party in as good a position as perf. of duty would have & ADD (1) Consequential damages reas. foreseeable when K'd (Hadley v. Baxendale) (lost rentals); and (2) Incidental Damages to find substitute LESS -> damages owner could mitigate if acted difft/sooner b. Alternative Remedies: (1) Specific Perf. (unique s/matter but not pers. serv.) (2) Damages in Quasi-K (no K BUT 1 party benefited other in attempting so MAJ awards value to prevent unjust enrichmt or cost incurred in reliance) (sister on street or new tires) (3) Liquidated Damages (preagree in K damages on breach enforced if damages difficult to assess and amt reas.) 2. Code Remedies a. Seller's Remedies (B breaches) (1) Status Quo Remedies (keep or get goods back) (a) Breach during Mfr S can do anythingg reas. (salvage/complete) (b) Breach in transit can stop & recover ANY goods if B insolvent or LARGE shipmts if just breaching (c) Breach post-delivery insolvent B can reclaim w/in 10 days (2) Post Status Quo (a) Resale (commercially reas.) w/ notice to B unless perishable & S gets difference K price & resale (b) Mkt Price Damages: difference K price & mkt price at tender (even if not sold) (c) Lost volume seller can seek lost profit (d) Action on the Price (= spec. perf.) no mkt so forced pymt & delivery b. Buyer's Remedies (1) Status Quo Remedies (force non-conforming goods back to S) (a) Rejection of any nonconformity so long as didn't accept (b) Revocation of Acceptance if substan'l defect difficult to discover or S said would fix & didn't -> To revoke or reject must notify S & if can cure await instructions that must be followed if res. -> No instns or unreas., B can do anything reas. w/ goods (2) Post Status Quo Remedies (after goods back) (a) Cover: reas. sub. w/o unreas. delay gets diff. (b) Difference Bet. Mkt Price at Breach & K price (c) Specific Perf., or (d) Remedy for W Breach (3) Breach of W Remedies (ANY of these B's remedy is diff. value if met W less value goods in B's hands) (a) Express W from desc. of goods that that's what it is; fact stated (like only driven 10 mi.); promises as to goods (will repair 6 mos.) or sample or model (will match) *Express W was part of basis of bargain (b) Implied W of Title: S owns & has rt to transfer (c) Implied W of Merchantability: fit & safe for ordinary purpose & only by S who deals in goods of that kind (d) Implied W of Fitness for a Particular Purpose: S knows B relying on skill to select/deliver goods for particular purpose L. Parol Evidence Rule If final written agreement, no prior oral or written negotiations or contemporaneous oral negotiations may be introduced to vary or contradict the writing 1. Complete integration if K says so OR if unstated, would res. person similarly situated have included the prior or contemporaneous negotiations in the document? (Williston & MAJ) (if yes, then complete integration) 2. Always introduceable to prevent ENFORCEMENT of the K 3. Can introduce to explain unintentional ambiguity (fruit) or intentional (software program X) 4. Can always introduce SUBSEQUENT events to K signing ----- Brought to you by - The 'Lectric Law Library The Net's Finest Legal Resource For Legal Pros & Laypeople Alike. http://www.lectlaw.com