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Formation of A Contract

Definition of Contract
contract is agreement that is legally enforceable
- look first for agreement
- second, determine whether agreement is legally enforceable
Formation of a Contract

Is the Initial Communication an Offer?
General Test: Manifestation of commitment (by one person)
An offer is a manifestation of an intention of one person to contract - word or conduct showing commitment by one person

- whether a reasonable person in the position of the offeree would believe that his or her assent creates a contract
Formation of a Contract

Sale of Real Estate
Common law

- price required
- description required
Formation of a Contract

Sale of goods
Article 2

- no price required

Vague or ambiguous material terms not an offer under either common law or UCC

Look for these buzzwords on the Bar to determine ambiguity:
Appropriate, fair, reasonable
Formation of a Contract

Requirement Contracts/ Output contracts
- A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyer's requirements or seller's output
[ALL, ONLY, EXCLUSIVELY, SOLELY] 
 - Requirements or output contracts are not vague or ambiguous and are valid

- Increase in requirements.  Buyer can increase requirements so long as the increase is in line with prior demands.  No unreasonably disproportionate limitation on increases
Formation of a Contract

Context
An advertisement or price quotation is not an Offer.

-Exceptions:
  i. An advertisement can be a unilateral offer if it is in the nature of a reward.  EX: Carbolic Smoke Ball Co. promises 100 pound reward to anyone who catches the flu after using its smoke ball as directed

  ii. An advertisement can be an offer if it specifies quantity and expressly indicates who can accept.  EX: Lefkowitz Dept. Store advertises "1 fur coat $10 - first come, first served"

  iii. Price quotation can be an offer if sent in response to an inquiry
Was the Offer terminated

Four methods to terminate offer
1. Lapse of time
 - time stated or reasonable time

2. Death of a party prior to acceptance
 - EXCEPTION: Irrevocable offers

3. Words or conduct of offeror; (revocation of an offer)
- Later unambiguous statement by offeror to offeree of unwillingness or inability to contract, OR
- Later unambiguous conduct by offeror indicating an unwillingness or inability to contract that offeree is aware of

4. Words or conduct of the offeree
Was the Offer terminated

Irrevocable Contracts: Option Contract
1. Option Contract: (offer +2)  An offer cannot be revoked if the offeror has not only made an offer but also
(i) promised to not revoke (or promised to keep the offer "open") AND
(ii) this promise is supported by payment or other consideration ("option") 

Was the Offer terminated

Irrevocable Contracts:
UCC "Firm Offer Rule"
1. An offer cannot be revoked for up to 3 months if
 (i) offer to buy or sell goods,
 (ii) signed, written promise to keep the offer open, and
 (iii) party is a merchant (Merchant is GENERALLY a person in business)
Was the Offer terminated

Irrevocable Contracts:
Reliance
1. An offer cannot be revoked if there has been 
(i) reliance that is
(ii) reasonably foreseeable and
(iii) deterimental
Was the Offer terminated

Irrevocable Contracts:
Unilateral Contract
1. The start of performance pursuant to an offer to enter into a unilateral contract makes that offer irrevocable for a reasonable time to complete performance
 - unilateral/performance
 - unilateral/ mere preparation (REVOCABLE: needs to be more than mere preparation; if in doubt on the Bar it's mere preparation)
Was the Offer terminated

Irrevocable Contracts:
Rejection:
Counteroffer
1. Counteroffer
 - generally terminates offer and creates a new offer.  
 - generally where a counteroffer has been made there is no express contract unless that counteroffer has itself been accepted.
 - Counteroffers need to be distinguished from bargaining.
 - Bargaining doesn't terminate offer (bargaining if the response to an offer is a question)
 - counteroffers don't terminate options

Option EXCEPTION: Counteroffer does not kill an option contract
Was the Offer terminated

Irrevocable Contracts:
Rejection:
Conditional Acceptance
2. Conditional Acceptance
- terminates the offer
Look for a response to an offer with the word "accept" followed by: if, only if, provided, so long as, but, or on condition that
Joe biden
 (i) Common law: rejects and becomes a counteroffer that can be accepted by conduct
 (ii) UCC: rejects
Was the Offer terminated

Irrevocable Contracts:
Rejection:
Additional Terms (Mirror Image Rule & UCC 2-207)
3. Mirror Image Rule (common law only)
 - a response to an offer that adds new terms is treated like a counteroffer rather than an acceptance 

4. UCC Art. 2 (2-207): Seasonable expression of acceptance:
 - A fact pattern which there is (i) offer to buy or sell goods and (ii) a response w/ additional or different terms raises 2 separate questions:
    1. Is there a contract?  Under UCC, response to an offer that adds additional or different terms, but doesn't make the new terms a condition of acceptance, is generally treated as an acceptance. merchants or nonmerchants is irrelevant.
   
2. Is additional term part of the contract?  Only if:
      (i) both parties are merchants AND
      (ii) Additional term is not "material" AND
      (iii) additional term is not objected to by original offeror
Acceptance of an Offer

Common Fact Patterns:
Offeree starts to perform
1. verbal offer
2. no words in response
3. start of performance

- start of performance is acceptance.  Starting to perform is treated as an implied promise to perform and so there is a BILATERAL contract

- EXCEPTION: Start of performance isn't acceptance of UNILATERAL contract offer.  Completion of performance is required. Again, start of performance is an implied promise to perform.  Offers to enter into unilateral contracts cannot be accepted by a promise.  If offer requires "performance" for acceptance, then "performance" for puposes of acceptance of that offer means completion of performance
Acceptance of an Offer

Common Fact Patterns:
Distance and delay communications
The offeror and the offeree are at different places and there are delays in receipt of communications.

1. all communications OTHER THAN ACCEPTANCE are effective only when received

2. acceptance is GENERALLY effective when mailed (mailbox rule)

3. If a rejection is mailed before an acceptance is mailed, then neither is effective until received.

4. You cannot use the mailbox rule to meet an option deadline
Acceptance of an Offer

Common Fact Patterns:
seller of goods sends the "wrong" goods
1. General Rule: acceptance and breach

2. EXCEPTION: Accomodation, counteroffer and no breach
Acceptance of an Offer

Person who accepts
An offer can only be accepted by:

1. a person who knows about the offer at the time she accepts

2. who is the person to whom it was made

Offers cannot be assigned; options can be assigned unless the option otherwise provides
Reason for Not Enforcing Agreement

Lack of Consideration OR Consideration Substitute:
Three steps when dealing with consideration on the Bar
1. identify the promise breaker, i.e., person who is not doing what she promised to do

2. ask whether that person asked for something in return for her promise, i.e., bargained for something

3. look at the person who is trying to enforce the promise and ask what requested legal detriment that person sustained

In sum look for bargained for legal detriment
Reason for Not Enforcing Agreement

Lack of Consideration OR Consideration Substitute:
Most likely consideration issues:
Past Consideration
1. Past Consideration
 - general rule, not consideration
 - EXCEPTION: expressly requested by promisor and expectation of payment by promisee


Reason for Not Enforcing Agreement

Lack of Consideration OR Consideration Substitute:
Most likely consideration issues:
Pre-existing duty
2. Pre-existing contractual or statutory duty rule:
COMMON LAW
 - doing what you're already legally obligated to do is not new consideration for a new promise to pay you more to do merely that.  Under common law new consideration is required for contract modification
- EXCEPTION: addition to or change in performance
- EXCEPTION: unforeseen difficulty so sever as to excuse performance
- EXCEPTION: third party promise to pay 

UCC Art. 2:
Art. 2 doesn't have a pre-existing duty rule.  New consideration isn't required to modify; only good faith to change an existing sale of goods contract
Reason for Not Enforcing Agreement

Lack of Consideration OR Consideration Substitute:
Most likely consideration issues:
part payment as consideration for release, i.e., promise to forgive balance of debt
3. Key is whether debt is due and undisputed.  If debt is due and undisputed, then part payment is not consideration for release
- if debt is not due OR disputed, then part payment is  consideration for release
Reason for Not Enforcing Agreement

Consideration Substitutes:
Written promise
1. Written promise
 - to satisfy an obligation for which there is a legal defense is enforceable w/o consideration


Reason for Not Enforcing Agreement

Consideration Substitutes:
Promissory estoppel (detrimental reliance)
2. Promissory estoppel (detrimental reliance):
(i) Promise,
(ii) Reliance that is reasonable, detrimental, and foreseeable, and
(iii) Enforcement necessary to avoid injustice.
Reason for Not Enforcing Agreement

Lack of Capacity:
Who lacks capacity?
1. infant-under 18
2. mental incompetents-lacks ability to understand agreement, or
3. intoxicated persons if other party has reason to know
Reason for Not Enforcing Agreement

Lack of Capacity:
Consequences of incapacity
1. Right to disaffirm by person w/o capacity

2. Implied affirmation by retaining benefits after gaining capacity (ratification)

3. Quasi-contract liability for necessaries
-a person who doesn't have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law
Reason for Not Enforcing Agreement

Statute of Frauds Defense
Statute of Frauds: designed to prevent fraudulent claims of the existence of a contract.  Statute of Frauds makes it harder to make such a false claim by requiring the claimant to have proof other than just testimony that a contract exists before the claimant gets its day in court.  The proof required to satisfy the Statute of Frauds is generally proof of either:
(1) performance; or
(2) or a writing signed by the person who is asserting that there was no such agreement
Reason for Not Enforcing Agreement

Statute of Frauds Defense:
Promise to answer for debts of another [suretyship]
Not merely a promise to pay but rather a promise to pay if someone else doesn't.
LOOK FOR A GUARANTEE
LOOK ALSO FOR THE MAIN PURPOSE EXCEPTION.
- if the "main purpose" of the obligation allegedly guaranteed was to benefit the guarantor, then not even that guarantee is within the Statute of Frauds
Reason for Not Enforcing

Statute of Frauds Defense:
Service contract not "capable" of being performed within a year from the time of the contract (i.e. more than one year):
(i) Specific time period, more than a year - S/F applies

(ii) Specific time, more than a year from date of contract - S/F applies

(iii) Task (nothing said about time) - S/F doesn't apply. "Capable," in essence, means theoretically possible w/ unlimited resources; ignore what actually happens; key is what might have hapened w/ unlimited resources

(iv) Life - S/F doesn't apply
Reason for Not Enforcing

Statute of Frauds Defense:
Transfers of interest in real estate (with exception for leases of year or less)
-P claims that D agreed to build a house on Blackacre.  Within S/F? NO

-P claims that D agreed to sell Redacre to P.  Within S/F? YES
Reason for Not Enforcing

Statute of Frauds Defense:
Sale of goods for $500 or more
- Conviser sues Epstein, claiming that Epstein agreed to sell him his '73 Cadillac for $500.  Epstein files a motion to dismiss based on S/F.  Is this within S/F? YES

- Same facts as above, except Conviser claims that the agreed upon price was $400.  Within S/F? Not with S/F, but rest of UCC applies
Reasons for Not Enforcing

How is Statute of Frauds satisfied:
Performance:
Performance and transfer of real estate
1. Performance and transfer of real estate
 - part performance satisfies S/F in transfers of real estate
 - Part performance requires any two of the three
(i) improvements to the land
(ii) payment, and
(iii) possession
Reasons for Not Enforcing

How is Statute of Frauds satisfied:
Performance:
Performance and service contracts
2(i). Full performance by either party satisfies the S/F

- Ludacris completes all the mini review material

2(ii). Part performance of a services contract doesn't satisfy the S/F

- P agrees to work for 3 years.  Gets fired after 13 months.
S/F isn't satisfied
Reasons for Not Enforcing

How is Statute of Frauds satisfied:
Performance:
Part performance and sale of goods contracts
3(i). Seller's part performance: ordinary goods
 - General rule is that part performance of a contract for the sale of goods satisfies the Statute of Frauds, but only to the extent of the part performance.  Look to see if question is about delivered goods or undelivered goods
   - Delivered goods - no S/F defense
   - Undelivered goods - S/F defense

3(ii) Seller's part performance: specially manufactured goods
 - S/F is satisfied as soon as the seller makes a "substantial beginning." Seller has done enough work that it is clear that what she is working on is custom made or made to order
Reasons for Not Enforcing 

How is the Statute of Frauds satisfied:
Writing
1. S/F other than Art. 2:
 - Writing must include all material terms [who & what].
 - Satisfies S/F so there is no S/F defense if the writing has been signed by the Defendant

2. S/F for Art. 2:
 - Writing must simply state that there is a contract for the sale of goods and contain the quantiy term [how many] 

merchant to merchant failure to respond
Reason for Not Enforcing

How is the Statute of Frauds satisfied:
Judicial admission (UCC only)
If D asserting S/F defense admits in a pleading or testimony that he had entered into an agreement with the P, purpose of the S/F - protection against fraudulent claims - is fulfilled and so no S/F defense
Statute of Frauds on the Bar for Questions other than S/F Defense to Enforce an Agreement

Written proof of authorization to enter into contract for someone else
RULES OF LAW REQUIRE that the authorization must be in writing only if the contract to be signed is within the S/F, i.e., authorization must be of "equal dignity" w/ the contract

Landlord sues Sharon for breach of one year lease that Epstein entered into, claiming that he was authorized to act on her behalf.  Does contract law require written evidence of Epstein's authority to act on behalf of Sharon?
 - No, equal dignity doctrine; leases for a year or less
Statute of Frauds on the Bar for Questions other than S/F Defense to Enforce an Agreement

Written proof of contract modification
Written evidence of a modification is needed by
1. looking at the deal with the alleged change and
2. determining whether the deal with the alleged change would be within S/F.

- If the deal with the alleged change would be within the S/F, then the alleged modification agreement must be in writing
Statute of Frauds on the Bar for Questions other than S/F Defense to Enforce an Agreement

Contract provisions requiring written modification
1. COMMON LAW: contract provisions requiring that all modifications be in writing are not effective - ignore contract language

2. UCC: contract provisions requiring written modifications are effective unless waived
Reason for Not Enforcing Agreement

Illegality
1. Illegal Subject matter - not enforceable

2. Illegal Purpose - if subject matter is legal, agreement is enforceable if the P did not have reason to know of the D's illegal purpose
Reason for Not Enforcing Agreement

Misrepresentation
1. statement of "fact" before the contract

2. by one of the contracting parties or her agent

3. that is false, and

4. induces the contract

- No wrongdoing required for material representations
Reason for Not Enforcing Agreement

Nondisclosure
Generally, a person making a contract has no duty to disclose what she knows.
e.g., B is contracting to buy land for a new Walmart but doesn't have to disclose that fact to sellers.  Wrongdoing requirement for nondisclosure.  Look for fiduciary-like relationship or concealment
Reason for Not Enforcing Agreement

Duress or Undue Influence
(not likely on bar)
1. Physical Duress

2. Economic Duress 
 - Elements of economic duress:
    (i) "bad guy" - improper threat which is usually threat to breach existing contract, AND
    (ii) "vulnerable guy" - no reasonable alternative

3. Undue Influence:
 - Look for (i) special relationship between parties and (ii) improper persuasion of the
weaker by the stronger
Reason for Not Enforcing Agreement

Ambiguity in words of agreement
There will be no contract if
1. parties use a material term that is open to at least two reasonable interpretations, and
2. each party attaches different meaning to the term, and
3. neither party knows or has reason to know the term is open to at least two reasonable interpretations
Reason for Not Enforcing Agreement

Mistake
1. Know the difference between mistake and misrepresentation

2. General outcome: relief from misrepresentation, not from mistake (mistake still a contract)

3. Mutual, material mistake of existing fact and not an assumed risk (courts are generally unsympathetic to mistake)

4. Unilateral Mistake; there will be relief for situations in which the other party had reason to know of the mistake, i.e., palpable mistake
Parol Evidence Rule

Parol Evidence Fact Patterns:
Changing/contradicting terms in the written deal
Regardless of whether the writing is complete or partial integration, evidence of earlier agreements is not admissible for the purpose of contradicting there terms in the written contract

G/R - cannot use parol evidence to change/contradict
Parol Evidence Rule

Parol Evidence Fact Patterns:
Mistake in Integration
A court may consider evidence of such terms for the limited purpose of determining whether there was a mistake in integration, i.e., a mistake in reducing the agreement to writing.
Parol Evidence Rule

Parol Evidence Fact Patterns:
Defenses
Regardless of whether the writing is a complete or partial integration, the parol evidence rule does not prevent a court from admitting evidence of earlier words of the parties for the limited purpose of determining whether there is a defense to the enforcement of the agreement, such as misrepresentation, fraud, or duress
Parol Evidence Rule

Parol Evidence Fact Patterns:
Ambiguity, i.e., explaining term in the written deal
Complete or partial integration, the parol evidence rule doesn't prevent a court from admitting evidence of earlier agreements to resolve ambiguities in the written contract
Parol Evidence Rule

Parol Evidence Fact Patterns:
Adding to the written deal
Parol evidence rule prevents a court from admitting evidence of earlier agreements as a source of consistent, additional terms unless the court finds
(i) that the written agreement was only a partial integration; or
(ii) that the additional terms would ordinarily be in a separate agreement
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