One promise given in exchange for performance. 

Not formed until performance is completed. 

Pay $10 to wash Ann's Car. Only contract when car is washed. 

Two promises are made. 

A promise is exchanged for a promise, and the contract is formed as soon as the promises are exchanged. 

Ann promises to give Barb $10 and Barb promises to wash Ann's car. 

Common Law

(RISE)

Generally derived from courts. 

Real Estate

Insurance 

Services

Employment 

Statutory Law

Sales Article (Article 2) governs sale of goods. (moveable things) 

Agreement made of an offer & an acceptance 

An exchange of consideration (something of legal value)

Lack of defenses

= enforceable contract, and remedies are available if one party breaches. 

Statement by an offeror that creates the power of acceptance in the receiver offeree. 

Express-- Oral or Written

Implied- Based on Conduct

The communciation MUST create a reasonable expectation in the offeree that the offeror intends to make a contract. 

1) Intent to Make A Contract - reasonable person would believe offer was serious. (Advertisements are only invitations) 

2) Terms must be definite and certain 

UCC- Just quantity 

Common Law- Identity of offeree, price, time, quantity, nature of work 

3) Communication to Offeree- No knowledge, no acceptance

3 Ways to Terminate an Offer

1) Revocation 

Revocation: Revoke any offer any time before acceptance by communicating the revocation to the offeree. 

May be Direct or Indirect

Revocation is generally effective when received by offeree. 

Can not revoke : Options Contract- gave consideration to keep offer open. 

3 Ways to Terminate an Offer 

2) Rejection by Offeree

Terminate the offer by rejecting it. Once it is effectively rejected, it cannot be accpeted. 

Rejected expressly - oral/written 

Effective when recieved 

Within a reasonable amount of time. Silence is seen as rejection 

3 Ways to Terminate an Offer

3) Operation of Law

Automatic- No conduct or express need. 

1) Death or Insanity of Parties -- prior to acceptance, the offer is terminated by operation of law. 

Option contract NOT terminated by death of party. 

2) Destruction of Subject Matter 

3) Proposed contract becomes illegal, offer will terminate 

Express- Oral or written

Implied- Conduct 

1) only person who offer was made to may accept it

2) reasonable method unless specified 

3) Must be unequivocal- mirror image rule. can't change anything 

4) Mailbox rule-effective when SENT, unless specified to be upon receipt. 

Price of contracting. Both sides of contract must be supported by LEGALLY SUFFICIENT consideration. Something Must be given in exchange for a promise. 

Legal Value-not already obligated to do it (detriment)...I.E. promises to perform or refrain from performing, promises to pay money, give land, goods, stock, etc. 

Doesn't need monetary value 

Doesn't need to flow to the party- possible to flow to 3rd party

Fairness is NOT required 

Can't be preexisting legal duty unless new consideration is given. 

Not a Gift

Past or Moral Consideration -- after the fact doesn't count 

Unless it is relied upon or detrimental, i.e. promises made to a charity 

Make a contract unenforceable. 

Lack of agreement

Lack of consideration 

Fraud

Innocent Misrepresentation

Duress

Undue Influence

Mutual Mistake 

Illegality 

Defenses 

1) Fraud

Establish the defense of fraud if: 

Misrepresentation of material fact (opinions don't count)

Actual and justifiable (reasonable) reliance by the plaintiff on the misrepresentation 

Intent to induce plaintiff's reliance on misrepresentation 

Damages (compensatory and punitive for fraud)

Scienter (knowing statement was false or with reckless disregard for the truth) 

Defenses 

1a) Fraud in the Execution

VOID 

Deceived into signing something he doesn't know is a contract. 

No meeting of minds. 

Defenses

1b) Fraud in the Inducement 

VOIDABLE 

Terms are materially misrepresented. 

Defense

2) Innocent Misrepresentation

MAID 

No scienter... Innocent NOT intentional 

Defense 

3) Duress

Threat of Physical Force -- VOID 

Economic or Social threat - VOIDABLE

Defenses 

4) Undue Influence

Taking unfair advantage of a relationship.

Abuse of a position of trust or confidence. 

-spouse, trustee, guardian, attorney 

Defenses 

5) Mutual Mistake

Both parties are mistaken to a material fact regarding the contract, the adversely affected party can avoid the contract. 

Usually DOESNT apply to mistakes in value. (opinion)

If subject matter is nonexistence without both parties knowing-- contract VOID

Defenses 

6) Unilateral Mistake 

NOT A DEFENSE UNLESS it was a material fact that the other party knew or should've known was a mistake. 

"Bids" 

Defenses 

7) Illegality 

Contract Generally Void

agreements to commit a crime or tort, restraint of trade, gambling contracts, usurious contracts 

Defenses 

7a) Illegality 

Licensing

Revenue Raising - Enforceable 

License required to protect public, the contract is void. No license, no need to pay. CPAs, attorneys, doctors, etc. 

Promises not to compete ARE enforceable IF REASONABLE

Reasonably needed (trade secrets), in duration, in distance 

Defenses 

8) Minor 

Usually a person under the age of 18

May disaffirm a contract anytime while a minor or within a reasonable time after becoming an adult. 

(Defense used in Liar Liar) 

EXCEPTION: for necessities- food, clothing, shelter 

Ratify the contract when reach maturity-- failing to disaffirm, expressly ratifying, retaining/accepting benefits 

ALL OR NOTHING 

Defenses 

9)Intoxication

Defenses 

10) Mental Incompentency 

Incapable of understanding the contract, prior made contract-- VOIDABLE 

Contract made AFTER is adjusdicated mentally incompentent is VOID

Defenses 

11) Statue of Limitation

Must be commenced within a certain period of time. If statue of limiations has expired, it is uneforceable. It doesn't make contract void, but bars judicial remedies. 

4-6 years typical 

From Date of Breach 

Defenses 

12) Statue of Frauds. REQUIRE WRITING

Require writing to be enforceable- only party to be charged must have signed. 

Marriage- Consideration is marriage

Year- cannot be performed within a year

Land- interests involving land

Executors- contracts by executors or similar representatives

Goods- sale of goods for $500 or more

Surety- act as surety, pay the debt of another

Defenses 

13) Impossibility 

After contract is entered into, an event occurs that will make perfomance of the contract OBJECTIVELY IMPOSSIBLE to perform (impossible for anyone to perform). 

A mere increase in cost does NOT make performance impossible. 

1. Destruction of subject matter. 

2. Death of party to perform personal services. 

Defenses 

14) Accord & Satisfaction and Substituted Contract

Accord is an agreement to substitute one contract for another and satisfaction is the execution of the accord. 

Discharges origianl duty. 

Until accord is satsified may sue under original contract. 

Substituted Contract- duties under orignial contract are discharged immediately. 

Defenses 

15) Novation

A new contract substitues a new party for an old party in an existing contract. All parties must agree. 

Party whose been released may use novation as a defense. 

Defense 

17) Prevention of Performance

If one party prevents the other party from performing contract duties, a material breach has occurred. 

Nonbreaching party is excused from performance. 

Defense

18) Parol Evidence Rule 

Parol (oral) evidence rule prohibits: 

1. A party in a lawsuit involving fully integrated written contract that appears to be intended to reflect the entire agreement between the parties

2. from introducing evidence at trial of: statement prior to or vary the terms of the written contract 

a. Subsequent Modifications made after contract are admissible

b. evidence to explain ambiguous terms

c. evidence to show fraud, duress, or mistake 

Remedies 

What to do when a party fails to perform something he or she is contractually obligated to do. 

Remedies

Material or Substantial Breach

If there is a material or substantial breach, the nonbreaching party can be discharged from contract. 

If MINOR, not discharged but entitled to damages

Remedies

Anticipatory Repudiation or Early Breach

One person unequivocally indicates IN ADVANCE OF PERFORMANCE to another that they will not perform contractual duties when time comes. 

Nonrepudiating party can: 

1. Immediately Sue for Damages

2. Wait for time of performance, then sue

3. Cancel the Contract 

Remedies

Damages

Put the nonbreaching party in as good of a position as they would've been if there had been no breach

Remedies

Damages

Compensatory 

for Personal Service, enough money to obtain substitute performance (ie difference between cost of substitute performance & contract prices0 

may also collect all damages that are reasonably foreseeable as result of breach (extra costs) 

Remedies 

Damages

Specific Perfomance

Used with land or unique items

Court order that the breaching party perform or face contempt charges. 

Money would be an inadequate remedy. 

Cannot be used with personal service contracts

EITHER Specific Performance OR Compensatory Damages, not both. 

Remedies 

Damages

Liquidated Damages

Clause in the contract that specifics what damages will be if there is a breach.

Reasonable and not a penalty to be enforceable. 

Remedies

Damages

Punitive Damages

ONLY available for FRAUD

Not available for breach of contract. 

Remedies

Rescission or Cancellions

Cancels the contract and restores parties to former positions

Available for mutual or unilateral mistakes, fraud, and most material contract breaches 

Under common law- can't rescind if contract has been substantially performed. almost perfect works. under UCC it does NOT. 

Remedies

Limitations on Monetary Damages

Consquential damages are only awarded for damages that at time of contract could be reasonably foreseen to be result from a breach. 

Cannot recover damages that could have been reasonably avoided. Must try to mitigate damages.

General Rule is only the parties to the contract have rights under the contract-- PRIVITY of CONTRACT. 

Exception: Intended third party beneficaries 

Intended--named or specifically described in the contract 

Donee Beneficiaries- recieve their interest as a gift 

(generally cannot sue) 

Creditor Beneficiaries-- Recieve their interest because a party owes them something 

Assignment of Rights: party wants to give contract rights to third party 

Generally any contract 

Except: changes in obligator's risk- i.e. insurance

specialized personal services 

Cannot assign offers but CAN assign options 

Both parties remain liable unless novation occurs 

Both parties remain liable. Considered an assignment- both assignor/mortgagor are personally liable. 

Upon default, lender may sue either party 

If person takes subject to mortgage, it is NOT an assignment. 

Mortgagee can foreclose on property and hold assignor/mortgagor liable. Mortgagee can not hold person who took subject to mortgage liable. 

Right to recieve money is assignable to another- even if contract prohibits.

But must provide debtor notice. 

Moveable Personal Prperty

EXCLUDES: personal services, real estate, intangible personal property (stocks, patents), fixtures (things attached to land) 

UCC laws apply. - "perfect tender"

Deals in goods of the kind sold or has special knowledge regarding the goods being sold. 

Merchants are held to a higher standard 

In most cases consideratoin is needed to make an offer irrevocable. 

EXCEPT MERCHANT FIRM OFFERS (and options). 

1) Seller must be merchant

2) Offer must be in writing and signed by merchant

3) Offer must give assurances it will be kept open for a certain time. NO LONGER THAN 3 MONTHS 

Will be effective even if it tates new or different terms. Unless between merchants and material changes. 

No mirror image rule. 

Acceptance by either a promise to ship or prompt shipment unless otherwise indicated. 

When NONCONFORMING GOODS (wrong ones) are shipped- both an acceptance and a breach 

Except when there is a notice of accomodation-- counteroffer. IE "we know we sent you the wrong one, but will you take this one instead?"

Quantity must be stated UNLESS it is a "output and requirements" contract- must be within reasonable normally expected amounts 

Modifications can be made without consideration as long as done in GOOD FAITH 

Unless explicited stated you want cash, may pay in cash. 

Defenses under UCC

1) Statue of Limiations

Defenses under UCC

2. Statue of Frauds

Sale of Goods for $500 or more must be in written UNLESS: 

Specifically manufactured goods (custom, tailored)

Written Confirmation (merchant sends another merchant writtten confirmation and there is no rejection within 10 days) 

Admitted in court

Performance- contract have been performed. 

need not be all in same writing, must be signed. 

Seller's basic duty is to hold conforming goods for the buyer and give them reasonable notice to enable buyer to take deliver. Risk of loss generally depends on time delivery is made. 

Goods must be identified for risk of loss to pass (i.e. marked, segregated, identified in some way) 

If there's an agreement, that dictates. 

No common carrier involved.

Time of delivery is "reasonable time"

Place of delivery: seller's place of business or home. 

If Merchant seller- risk passes upon delivery, buyer takes possession. 

If Non Merchant Seller (like a garage seller)- buyer assumes risk of loss upon tender of delivery of goods to buyer. When money is exchanged. 

Carrier Cases - Risk of Loss

Shipment Contract- Risk of Loss passed when goods are delivered to carrier (in the truck). In transit- Buyer has risk SHIPPING POINT

Destination Contract- Risk passes at destination, when buyer recieves. In transit- Seller has risk. DESTINATION POINT

Seller must deliver goods along side of specified vessel. 

SHIPPING POINT

Buyer has risk in transit 

Contract price includes cost of goods, insurance, and freight. 

SHIPPING POINT

In transit- Buyer has risk of loss. 

F.O.B, seller's place- shipment contract. Buyer has risk of loss. 

F.O.B, buyer's place. destination contract, seller has risk of loss. 

Risk on Seller Until Approval 

Sale is not final until buyer gives approval. (Trial period) 

Both title and risk of lsos remain with seller until buyer approves. 

Risk on Buyer Until Returned 

Completed sale on delivery but the buyer has right to return the goods. (Sale on consignment). Risk of loss passes to buyer when seller completes delivery, and remains with buyer until completely returned. 

Once goods are marked, tagged, segregated, the buyer can insure the goods. 

Title passes when parties agree/contract specifies

If not specified, upon delivery. Risk & title go together, so when the buyer receives the risk, it recieves the title. Vice versa. 

If buyer rejects goods, the title revests with seller. 

Either in contract or implied. 

Must fulfill "perfect tender". 

Must conform to all four warranties: 

1. Express warranties 

2. Implied Warranty of title

3. Implied Warranty of merchantability

4. Implied warranty of fitness for particular purpose

Made by the seller to induce purchase.

Oral or written 

The goods will conform to the statement of fact, to the description or model. 

Not a statement of value or opinion 

Seller has the good title and the right to transfer that title. 

No undstated ecumberances (liens, etc).

A general disclaimer can not disclaim title- no "as is" blanket 

Made ONLY BY merchants to any buyer. 

Goods are fit for ordinary purposes. 

Can be disclaimed by general disclaimer of "as is" 

Buyer relies on ANY seller to select goods suitable for buyer's particular purpose. Seller must know purpose and that buyer is relying on him. 

Can be disclaimed by "as is" claim. 

Tort Liability

Negligence

Injured by goods can sue under negligence if: 

1. Seller owed them a duty of care

2. Seller breached the duty by failing to use DUE CARE

3. Damages- plaintiff suffered damages

4. Causation- damages were caused by seller's negligence

Tort Liability 

Strict Products Liability 

Focus on the product, not seller's conduct. 

Must prove: 

1. Product was DEFECTIVE when it left seller's hand

2. Defect caused plaintiff's injury

3. Defect made product reasonably dangerous

4. Seller was in the business of selling this type of good (merchant) 

5. Product reached user without substantial changes in condition

Privity is NOT required

If product liability, no need to prove negligence. 

Remedies under UCC

1. Demand Assurances under UCC

If one party has reasonable grounds to believe the other party will not perform whe required, they may make a written demand for an assurance of performance from the other. 

Failure to give this assurance within a reasonable time is an anticipatory repudiation. 

Remedies under UCC 

2. Duty to Mitigate

If buyer breaches. 

1. Cancel & Sue for Damages

2. Withhold delivery & stop goods in transit 

-If insolvent, demand cash or reclaim them within 10 days 

3. Resell & sue for damages (difference between contract & sale price) 

4. Collect full contract price & incidental damages if goods can't be resold

5. Liquidated damages- clause in sales contract, must be reasonable. Downpayment of lesser of $500 or 20% of price may be kept. 

If Seller Breaches

1. Reject for any nonconformity -- must be in "perfect tender" - Seller has right to fix problem within contract period

2. Cancel or rescind

3. Sue for damages - may accept nonconforming goods and sue for damages. Difference in value of right and wrong goods. 

4. Undelivered goods- may COVER (purchase comparable goods and sue seller for price difference) or sue for difference between market & contract prices

5. Replevin- recover goods wrongfully in hands of seller if goods are identified and buyer cant reasonably cover 

5. If seller becomes insolvent, buyer can recover goods if they've already been marked.