1 I. THE CONTRACTUAL FLOW: Form It 1. Offer 2. Acceptance 3. Consideration 4. Defenses to FormationThird Party Rights Perform it 5. Conditions 6. Excuses 7.

Breach 8. Defenses to Breach 9. Remedies

II. WHAT CONSTITUTES AN OFFER: The outward manifestation of present contractual intent to be bound by the terms of a contract that are certain and definite. 1. Outward manifestation: calling someone, raising hand at an auction, verbal statements 2. Present contractual intent to be bound by the terms of a contract which are certain and definite. To test if terms are certain and definite, use QTIPS Q- Quantity T- Time I- Interested Parties P- Price S- Subject Matter 3. Determining whether an offer exists is an objective test. Ask yourself, would a reasonable person believe that an offer exists under the circumstances?

A)

HOW LONG DO OFFERS GENERALLY EXIST? 1. Offers generally exist for the time stated by the offeror. If the offeror did not specify how long the offer would stay open, the offer stays open and may be accepted for a reasonable a reasonable period of time.

What is a reasonable period of time: There are no hard and fast rules as to what is reasonable. For instance, offers made by the offeror over the telephone expire upon the parties hanging up the phone if no expiration date or time is expressed by the offeror. Also, what is reasonable depends on other factors, including factors relating to the subject matter or the industry involved in the contract. For example, an offer to sell pumpkins in the month of October may terminate sooner than an offer to sell pumpkins in the month of March because of Halloween pumpkin sales.

2 B) HOW CAN OFFERS TERMINATE? 1. Lapsethe time stated by the offeror for duration expires or the reasonable time for the offer expires EXAMPLE: You have a week to respond to the offer, and the week goes by and you dont respond 2. Deaththe offeror dies EXAMPLE: Bob offers to sell you his car, but before he sells it to you he dies 3. Destruction of the subject matter of the offer. EXAMPLE: Bob offers to sell you his Pinto, but someone rear ends him before he can, causing the car to explode, but leaving Bob unharmed 4. Illegalityalso known as in pari delicto EXAMPLE: Bob hires you to do contract killing 5. Revocationthe offeror can cancel the offer at any time unless you pay to have the offer stay open. Consideration may be by promissory estoppel Two types of revocation Indirect: A reliable source tells the offeree that the offer is revoked Direct: The offeror tells you the offer is revoked EXAMPLE: Bob offers to sell you his car, but changes his mind and closes the offer 6. RejectionOfferee rejects the offer OR makes a counter-offer. Remember that a counter-offer subsumes the terms of the prior offer. EXAMPLE: Bob sends a letter to Mark: Hi Mark, I hereby formally offer to sell you my blue 1967 Chevy Malibu for $10,000. The delivery of the car and the payment will occur at your house on February 1. Please sign the bottom of this letter and mail it back to me by January 10, if you agree to these terms. If Mark signs the letter and mails it back with the statement I agree but will pay only $9,500. Marks reply is a counter-offer. It operates as a rejection of Bobs offer thereby terminating the offer, and constitutes a new offer as a matter of law. This new offer does

3 not fail for uncertainty if the certain and definite terms (QTIPS) from a prior offer are changed. The Court may look to the prior offer.

C)

SPECIAL OFFER ISSUES 1. Auctionsraise the question of who is the offeror? 2. a) Auctions with reserve: house reserves the power to reject a bid. In this case, the auction house is the offeree b) Auctions without reserve: must take highest offer. In this case, the auction house is the offeror 2. Uniform Commercial Codeoption contract (paid for irrevocable contract) EXAMPLE: The offer remains open if you pay the person $50 3. Advertisementsinvitations to negotiate a contract

III. WHAT CONSTITUTES ACCEPTANCE? 1. Acceptancethe unqualified unequivocal assent to the terms of an offer which is properly communicated to the offeror EXAMPLE: Bob thinks about bidding on an item at an auction but doesnt. The auction house sells it to someone else. Bob had no contract because he did not properly communicate his intentions of buying to the auction house. 2. To test for acceptance, one uses the mirror image rule. a) Mirror Image RuleDid the offeree change any terms of the offer regarding QTIPS or communication? If so, the change is considered a rejection and counteroffer.

A)

SPECIAL ISSUES WITH ACCEPTANCE 1. Has the offer terminated? a) Acceptance must be within stated time or reasonable time b) Acceptance must be in by the authorized mode of communication EXAMPLE: Bob is told to fax his response to an offer, but instead

4 of faxing, Bob hand writes a letter and delivers it to the offeror. No contract has been formed because Bob violated the authorized mode of communication 2. How can the offeree accept an offer? a) Unilateral Contractspromise in exchange for an act EXAMPLE: Cameron promises to pay someone for finding his lost cat Shugie. The person must find the cat to receive payment. b) Bilateral Contractspromise in exchange for another promise. No performance needs to take place for a bilateral contract to exist. EXAMPLE: Bob offers to pay Cameron $100 for his digital camera. Cameron agrees to give Bob the digital camera for $100 .Even though no action has taken place yet, the bilateral contract has been formed. 3. Mailbox Ruleacceptance is effective as soon as you put it in the mail or dispatch it. a) Leaving the possession of the offeree is acceptance b) If acceptance follows rejection, whichever gets to the offeror is effective c) If the offer specifically requires receipt of acceptance it is valid on receipt d) If unauthorized mode, valid upon receipt 4. Offer + Acceptance = Mutual Assent, or agreement between parties forming the contract

IV.

WHAT IS CONSIDERATION? 1. Bargained for exchange of a legal detriment a) Legal Detriment- something you are not already obligated to do 2. Modifications to contracts must be supported by consideration

A)

SPECIAL ISSUES WITH CONSIDERATION

1. Lack of Legal Detriment a) Past consideration EXAMPLE: Bobs real estate agent does not charge commission on the sale of a house, but Bob offers a gift of $1000 in return for the good deal. Bob does not have to pay the $1000 dollars because past consideration is no consideration b) Already obligated to perform (preexisting duty) EXAMPLE: Bob offers to pay a lifeguard $50 for saving his kid, when the lifeguard tries to collect, Bob does not have to pay because the lifeguard was already obligated to save lives 2. Unilateral vs. Bilateral

3. Accord and Satisfaction a) Liquidateddebt where we know the exact amount b) UnliquidatedNo one knows the exact amount. Accord occurs when an agreement is reached to take a lesser sum, and satisfaction occurs upon payment.

B)

GUARANTEES 1. Promising payment upon default

C)

POST STATUTE OF LIMITATIONS PROMISES 1. Moral obligation

D)

Promissory Estoppel 1. When someone reasonably and substantially relies on the promise of another may be allowed to attain some kind of recovery EXAMPLE: Bobs grandma promises to leave him her estate if he moves to New York to take care of her on her death bed. Bob takes steps, and moves to New York, thinking he will get her estate. If granny doesnt own up to her promise, Bob can collect.

V.

DEFENSES TO FORMATION:

A)

MISTAKE OF MATERIAL FACT 1. Bilateral Mistakea mistake made by both parties dealing with a material fact that is a fact important to the subject matter of the contract a) The result of a bilateral mistake is no mutual assent, therefore no contract EXAMPLE: Bob asks for his goods to be shipped from India by a ship called Peerless, which leaves in October. Instead, the shipping company uses another ship with the same name Peerlesswhich shipped in December. Both parties were mistaken, no mutual assent. 2. Unilateral MistakeOnly one of the contracting parties makes a mistake as to some material fact a) The mistaken party is offered no relief (No legal defense) b) If the other party knows, or should know that a mistake was made then the contract may not be enforceable c) If a mistake was made in addition, subtraction, multiplication, or division inadvertently and without gross negligence the contract may be rescinded EXAMPLE: Bob buys a painting at a garage sale for $20,000 that he thinks is a Van Gogh, however it is really made by Cameron Jolly. Unless the owner knew Bob was mistaken, Bob is stuck paying $20,000. 3. FraudMisrepresentation that is consciously false and is intended to mislead another. The other party justifiably relies on the misrepresentation. a) Fraud constitutes an involuntary agreement, thus eliminating mutual assent b) Predictions or opinions do not constitute fraud EXAMPLE: Cameron lies about his house and says there

7 are no structural problems so that he can sell it. Bob relies on Camerons statement and buys the house, only to find out that it had structural problems 4. Fraud in terms of signing a document EXAMPLE: Bob gets Britany Spears to sign an autograph which really turns out to be the deed to her house 5. Concealmentsteps taken to hide a situation a) You have a duty to disclose situations EXAMPLE: Cameron neglects to tell Bob that the house he is selling him is haunted by the woman who was brutally murdered inside 6. Misrepresentation of the lawno legal remedy 7. Negligent misrepresentation (the neglect replaces the scienter) 8. Capacity a) Undue Influenceabuse of a special relationship wherein one party can greatly influence another, and does in fact influence another over their free will (Generally seen in a special relationship) EXAMPLE: A priest tells Bob that he will cleanse his sins for the low price of $50. Bob trusts the priest and gives him the $50. b) Duressassertion of unlawful pressure to compel a person to do an act not of their own free will. Can be economic or a physical threat. (Test is subjective AND objective) EXAMPLE: Someone approaches Bob and says sign this contract or I will kill your wife and kids. c) Blackmail or extortion to induce consent to a contract constitutes duress.

9. Insanitybroken down into two forms a) Adjudicated Insanity

b) Previously adjudicated insanity 10. Minorshave no capacity to contract for non-necessities a) Question is whether something is a necessity or not b) Minors can disaffirm a contract, but they must retain the consideration that is still retained EXAMPLE: Bob is under 18, and signs a contract with a car dealership for a new car. Because Bob is a minor, he can get out of the contract if he returns the car. 11. Legalityillegal issues such as: a) Sunday agreements b) Gambling c) Usury d) Licensing statues e) Contract to commit a crime or tort (in pari delicto) f) Contracts that restrain trade or prevent fair competition (monopolizing) 12. Unconscionable Contracts a) Proceduralprocedure used to enter into the bargain EXAMPLE: Bob bullies someone into signing a contract b) Substantivethe essence of the bargaining SUBSTANTIVE FACTORS: Unequal bargaining position Lack of education Lack of finances c) Adhesion Contractscontracts that are swayed to benefit the contractor NOTE: Uniform Commercial Code only applies unconscionability to the sale of goods 13. Parol Evidence Rulesubstantive rule of contracts under which a court will not receive into evidence the parties prior negotiations, prior agreements, or contemporaneous oral agreements if that evidence contradicts or varies the terms of the parties written contract EXAMPLE: If Bobs contract says in writing that he will paint the house blue, he cannot argue in court that he verbally agreed to paint the house red. What is written in the contract goes.

14. Statute of FraudsMR. DOGmust be in writing in order to be enforced M- Marriage R- Real Property D- Debt of another O- Longer than a year G- Goods of $500 or more Sufficient Memo Partial Performance ($ or land) Main purpose exception Full performance Partial receipt of $ or goods

Exceptions

MARRIAGE EXAMPLE: If your wife leaves you standing at the altar, you cannot sue her unless you have sufficient memo proving that you were going to marry her REAL PROP. EXAMPLE: If you verbally agree to buy a property you cannot sue, unless you have gone onto the land and taken steps to alter it DEBT EXAMPLE: If Paris Hilton verbally offers to pay your tuition, you cannot sue her for your tuition, unless you can prove that she benefits from the offer. ONE YEAR EXAMPLE: If you verbally agree to dig someone a swimming pool and its going to take longer than a year, you cannot sue them for payment unless you fully complete the project within the year. GOODS OF $500 EXAMPLE: Someone verbally offers to sell you his computer for $699 you cannot sue them for the computer, unless you have given them partial payment. They cannot sue you for the money unless they have given you partial or full product. a) Sufficient Memo works as an exception for all of the MR. DOG situations

VI.

THIRD PARTY RIGHTS:

A)

ASSIGNMENT AND DELEGATION 1. Assignmenttransfer of a contractual right to a third party a) Assignment is the transfer of a right and it happens after the contracting b) Rightto require someone to perform a task 2. Delegationtransfer of a contractual duty to a third person

10 a) Dutythe obligation to perform a task 3. Issues with Assignment and Delegation: a) Is the matter assignable? It can be too personal to assign. b) Notice of assignment- successive assignments c) Liability remains with parties 4. Third party beneficiariesa person who receives an intended contractual benefit as the result of a formation of a contract a) Intentional beneficiary: third party has legal rights and can sue the promissory directly for a breach of the contract b) Incidental beneficiary: cannot sue to enforce the contract EXAMPLE: Someone offers to add something to Bobs house that will raise the property value of the entire neighborhood. Bobs neighbor cannot sue him to enforce the contract because the neighbor is an incidental beneficiary 5. Novationthe substitution by agreement or a new party to a contract and the release of a previous party to the contract.

VII.

CONDITIONS: 1. An act or event not certain to occur but which must occur before a contractual performance becomes due. 2. Conditions must be performed or executed

A)

CREATION EXPRESS CREATION 1. Made through expressed terms like on the condition that 2. Terms of art a) Time is of the essence 3. Condition of satisfaction

11 a) Mechanical fitnessobjective EXAMPLE: Bob makes a Boeing 747 that doesnt work therefore Bob breached his contract b) Subjective Satisfactionpersonal satisfaction. There is no consideration, so good faith is implied. EXAMPLE: Bob paints a portrait but the person does not like it. He must meet the persons personal satisfaction 4. Courts dislike express conditions IMPLIED IN FACT 1. Workmanlike mannergood job 2. Good faithno lying 3. Cooperation CONSTRUCTIVE 1. Implied by the courts to promote justice 2. Work before pay EXAMPLE: Before Bob pays the person, they have to build his pool

B)

TIMING OF CONDITIONS 1. Precedentcondition performed before other partys contractual duty is due 2. Concurrentconditions must be performed simultaneously with other parties duty

C)

LEGAL DEFENSES TO NON-PERFORMANCE OF CONDITIONS 1. Wrongful prevention EXAMPLE: Locking someone out when they are supposed to perform a condition within the house 2. Waiver

12

3. Novation 4. Modification 5. Substantial performance a) Does not apply to express conditions 6. Anticipatory breach 7. Voluntary disablement 8. Accord and satisfaction 9. Impossibility of performance a) Objective impossibility

VIII. BREACH OF CONTRACT: 1. The failure of a contracting party to perform a contractual duty which has become due a) You do not go to jail for breach of contract 2. Defenses to breach of contract a) Waiver b) Novation c) Modification d) Anticipatory Breach e) Voluntary Disablement f) Accord and satisfaction g) Impossibility of performance h) Objective impossibility

13 IX. DAMAGES (REMEDIES): 1. To place the non-breaching party in same condition that he would have been in had the contract been performed.

A)

TYPES OF DAMAGES 1. Compensatorycover direct losses and costs EXAMPLE: Bob is hired for a $100 job. The person who hired Bob cancels the contract and is in breach. Bob gets another job, but only makes $50. Bob can sue the person who hired him for the $50 he lost. 2. Consequentialto cover indirect foreseeable losses a) Must be foreseeable EXAMPLE: Bob has a contract to buy staplers and he plans to resell them. Stapler Co. breaches contract. Bob can sue Stapler Co. for the foreseeable losses of revenue he would have gotten from the staplers. 3. Punitive Damagespunishment (cannot get punished for breach of contract) 4. Nominalrewarded anywhere from pennies to the maximum amount of a dollar (used to show that a wrongdoing occurred) 5. Liquidated Damagesparties already agreed to damages in case of a breach a) Cannot act as penalty

C)

OTHER REMEDIES 1. Specific Performance 2. Declaratory Relief

D)

MITIGATION OF DAMAGES 1. Plaintiff has the duty to reduce damages if reasonable a) 20th Century FOX case

14 X. HIERARCHY OF TERMS: 1. Express Written 2. Express Oral 3. Course of Performance 4. Past Performances 5. Industry Standard

XI.

QUASI CONTRACTS: 1. In order to avoid injustice the courts may use equity a) Plaintiff conferred a benefit on the defendant b) Plaintiff expected to get paid and c) It would be unjust to allow the defendant to keep the benefit without paying the plaintiff