Answering a Contracts Question

Armadillos From Texas, Play Rap, Eating Tacos.  

Applicable Law

Formation of the K

Terms of the K

Performance of the K

Remedies 

Excuses

Third Party Problems?

Article 2

Mutual Assent

Consideration

Void K 

v

Voidable K

v

Unenforceable K

Void- without legal effect from the outset

Voidable-one that a party can seek to avoid by excuse

Unenforceable-otherwise valid but unenforceable due to available defense

Manifestation of intent to K

Test: reasonable person believes it to be an offer to create a K

Terminated by: Lapse of reasonable or predetermined amount of time, Death, revocation, express rejection (or by counteroffer)

An agreement to keep an offer open for a predetermined amount of time-irrevocable

Can be assigned

Requires Consideration

If:

1. In writing

2. Signed

3. By Merchant

Cannot revoke until stated time, or reasonable amount of time with a maximum of 3 mos. 

Requires notice, valid upon receipt by offeree

(not mailbox rule)

K cannot be revoked if their is 

1. Reasonably foreseeable

2. Detrimental Reliance

If Unilateral K, cannot revoke for a reasonable amount of time after performance has been commenced- mere preparation to perform is not enough to prevent revocation.  

Rejection

1.  Either expressly rejected and dead, or by counteroffer, and rejected with a new offer

Inquiring/ bargaining is not a counteroffer- offer is not rejected without a real counteroffer.

2. Conditional Acceptance (is a new offer) 

Offer can only be accepted as offered- any change in terms is a counteroffer.  

Article 2- no mirror image- if additional terms, even if conditioned upon, it is accepted-terms depend on type of parties:

Both Merchants- deemed accepted with additional terms unless materially changes or offeror timely objects to additional term.  

Not merchant-a proposal for modification that must be accepted.  

Conditional Acceptances-not an acceptance

Cond. Acceptance w/ Conduct Indicating a K by Offeror

UCC-term not in K, CL- it is in.  

Full Performance without Notice of Acceptance-K formed limited by terms of offer and circumstances requiring notice

Starts to Perform K- K unless unilateral K (then detrimental reliance damages poss avail)

Promise to Perform K- K unless unilateral

Accepted, but sent wrong goods- accepted, but breach

Sent wrong goods with explanation, seeking approval- no acceptance, no breach.  (counteroffer)

Deemed Accepted on day Acceptance is Properly Mailed.  

If rejection sent before acceptance, whichever received first, valid from date of mailing. 

If acceptance sent, and then rejection, acceptance is effective unless rejection arrives first and offeror detrimentally relies.  

DNA to Option deadlines (option offer still must be expressly revoked for invalid acceptance)

Consideration

Bargained for exchange of legal value

Bargained for Legal Detriment

No past consideration unless requested act and knew person expected payment.

Partial Payment when debt is due and disputed is okay, if undisputed, partial payment is not consideration.  

Substitutes for consideration

Not "consideration" but can create K still

A written agreement to satisfy an obligation for which there is a valid defense - renewing a K

Promissory Estoppel- promise that creates detrimental reliance.  

Preexisting Contractual or Statutory Duty Rule

(Not in Article 2)

CL- need new consideration to justify a K to get paid more to do something already required to do.  Examples: modification of performance, unforeseen difficulty that would probably excuse performance, or if a 3rd party agrees to pay.  

Article 2- No preexisting legal duty rule- do not need new consideration for modification as long as sought in good faith

Other Reasons to Not Enforce an Agreement

(other than lack of consideration)

Infancy

Incompetence

Intoxicated Person

EFFECT: Person lacking capacity can 1) avoid, 2) ratify by receiving benefits and gaining capacity, and 3) Quasi-K for necessities

SOF

Illegality

Public Policy

Misrepresentation

Duress

Unconscionability

Ambiguity

SOF

When it Applies

(6)

MYLEGS

Applies to:

Promises to answer to debts of another ("If he doesn't pay, I will.")

Personal Guarantees by Executor on Behalf of Decedent

In Consideration of Marriage (will do, or won't do if marry)

Real Estate Interests (lease of 366 days)

Sale of Goods $500+

Ks not capable of being performed within ONE YR, or do something more than a year from date of K

EQUAL DIGNITY RULE

*IF another party K's for you, and K is within SOF, you must give authorization in a writing that satisfies SOF.  

1) In writing

2) Authenticated by person claiming no K

3) All Material Terms (who, what- not $)

(UCC- needs quantity #)

Merchant's Rule: If both merchants, need not be signed by person asserting defense, if:

1) the person who claims there is a K sent a signed writing with a quantity term, and

2) other party fails to respond within 10 days.

Modifications: If modifications bring K into SOF, must be in SOF writing.  

Full performance by either party

Part Performance of Sale of Goods K (not services)

Part Performance of Real Estate (2/3) of 

1. Possession

2. Substantial Improvements

3. Payment of Purchase Price

Part Performance of Sale of Goods to Satisfy SOF

Delivered Goods or

Specifically Manufactured Goods- once a substantial beginning has occurred

Illegality

Subject Matter or Purpose

Agreement only enforceable by a party who does not know of illegal purpose, and subject matter is legal.  

I.E. Plane ticket bought to kill someone, airline can enforce price

Courts can refuse to enforce for public policy reasons.  Look for:

An exculpatory agreement that exempts intentional or reckless behavior, or a noncompete agreement that there is NO REASONABLE NEED or UNREASONABLE TIME AND PLACE RESTRICTIONS

Duress

Physical or Economic

1. Improper threat, or (Bad Guy)

2. No reasonable alternative (Vulnerable guy)

Court can refuse to enforce all or part of a K when:

1) There is unfair surprise, or

2) Oppressive Terms- 

AT THE TIME K WAS MADE

Ambiguity

1) More than one reasonable interpretation of

2) A material term,

3) Each party using different interpretation

4) Neither party knows or has reason to know of other's interpretation

Mistake

Mutual

v 

Unilateral

Mutual Mistake of Fact

As long as party seeking avoidance didn't assume the risk of the mistake

Unilateral

Voidable by unmistaken party only.  

Only applies when court finds there is an integration (written, final agreement).  If there is, exclude all previous written and oral evidence, and concurrent oral evidence, unless it:

1) Helps interpret terms

2) Additional, nonconflicting terms (if partial integration)

Later communications allowed.  

Merger clause helpful, but not conclusive.  

Terms that Can be Added to a K

CL

Performance for CL-SUBSTANTIAL PERFORMANCE

1) Course of Performance- same parties, same K

2) Course of Dealing- same parties, similar K

3) Usage of Trade- different parties, similar business

UCC TERMS 

PERFORMANCE- PERFECT TENDER RULE

Gap Fillers

Price- rzbl price at time of delivery

Time- reasonable amt of time

Place- seller's place of biz or residence

When to pay- time and place B receives goods

Delivery

Shipment K

FOB (Seller's city)

 Get goods to common carrier

Make reasonable arrangements for delivery

Notify Buyer 

Risks passes when handed to cc

Delivery

Destination K

FOB (Delivery Location)

Obligation on Seller to get goods to Buyer

Risk of Loss on Seller until Delivered to B

Risk of Loss Passes upon Tender of Delivery, or in 

B's Possession

C.I.F.

F.A.S.

Costs, Insurance, Freight

Free Alongside (risk passes to B at dock, before boat)

Risk of Loss Rules

(4)

1. Agreement of Parties

2. Breaching party

3. By Common Carrier (once S completes Delivery obligation)

4. If seller a merchant-to B on receipt

If not merchant- when S tenders goods

Warranty of Title

Implied Warranty of Merchantability

Implied Warranty of Fitness for a Particular Purpose

Express Warranty

Can disclaim everything except express

"As is" "With all faults"

Every item is protected by a warranty of title

Title is Good

Applies to Merchants of That Kind

Fit for Ordinary Purpose 

No warranty if with reasonable inspection would have discovered defect

Only if Seller:

1. Knows or has reason to know of purpose

2. Knows B relies on skill of Seller

3. B actually relies 

Promises or guarantees, not mere puffery in sales

Forms basis of bargain (not actual reliance)

Cannot put limit on P.I. from goods

Per se unconscionable

Rejection

*Perfect Tender Rule

Must reject within reasonable time

Option to return and sue for $

Keep and sue for $

S has chance to cure if: Good faith belief that goods were acceptable, or 

if still time to cure

Installment Ks- can reject separate lots

Any person suffering P.I. or

Any person in household, family

Material Breach- aggrieved party need not perform

Minor breach- perform and seek damages

Nonbreaching party must show willing and able to perform

Anticipatory Repudiation

"I Won't Do IT"

4 Options:

1. Sue

2. Wait to sue until performance is due

3. Ignore and urge P to perform, reserving right to sue

4. Discharge duty, rescind.  

Can only do until performance is due, and 

hasn't been cancelled or indicated that repudiation was accepted.  

Must be reasonably certain (look for new biz ventures, give reliance instead of profit)

DUTY TO MITIGATE (always)

Specific Performance/Injunction

Compensatory

Reliance

Consequential

Liquidated

Incidental

Only where goods are rare or unique

Unless sold to BFP, Laches

Never for service contracts

Compensatory

Same as Compensatory

Incidental costs and expected profit- any costs not incurred.  

Reclamation action for goods, if:

1) Buyer was insolvent at time received goods,

2) demand within 10 days (reasonable time if Buyer represented not insolvent- up to 3 months), and

3) Buyer still has goods.  

Replevin for goods if:

1) Pay in full

2) Seller becomes insolvent within 10 days after receiving payment

3) Goods were purchased for personal, family, or household use

"Identified goods"- if after reasonable effort is unable to secure adequate substitute goods

Regular UCC Remedy

Seller Breach

FMV if Perfect- FMV as delivered

 or

Replacement $- Contract $

Buyer Breach

(K price-resale price)

*maybe lost profits if volume seller

ONLY

costs of inspection, transport, care, and custody of rejected goods.  

Material Breach Excuses Performance

Factors

Timeliness only if "Of the essence" or Known Condition

Amount of benefit received by nonbreaching party

Extent of Part performance

Adequacy of Compensation for Damages

hardship to breaching party

Nonoccurrence of Expressed Condition

Accord and Satisfaction- new agreement for performance, if not satisfied, can sue on either old or new agreement

Impossiblity

Impracticability

Frustration of Purpose

Accord and Satisfaction

v

Modification

Accord- agreement to allow a substituted performance- can sue on either old K or accord.  

Modification- agreement to allow a different agreement to replace old one- can only sue on modification

both parties agree to substitute in a new party, same performance

Can only recover against new party

One party transfer responsibility to perform to another (without other party's consent)

Can only sue on Privity of K 

Delegator can only sue delegatee if consideration (new K between parties)

Limitation on delegation: if prohibited, special skills, or special reputation.  

If says no delegation- no remedy under K, unjust enrichment- yes.  

When a party gives rights of a K to another

Cannot substantially change the duty of the obligor

Can only be prohibited by expressed prohibition, takes right of assignment away, but not the power to assign

Assignee can still enforce if not aware of prohibition

Wins race against earlier assignees (without value) or later assignees with value, except when:

he is the first to obtain payment, a judgment, a novation (permission from both parties), or indicia of ownership.  

Assignment 

v

3rd Party Beneficiary

Assignment happens after K is formed, assignee not in Original K

3rd party beneficiary is in original K- not a party

Only intended beneficiaries have K rights.  

Promisor- promises to benefit 3rd party

Promisee- obtains promise that benefits 3rd party

If 3rd party knows of K, and has relied on K, rights have vested and K cannot be cancelled or modified without 3rd party consent.  

3rd Party can recover from promisor- person who was supposed to provide benefit.  Only from promisee if on owed debt.

A can recover from B

Promisor has same defenses against 3rd party as had against Promisee