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THE LAW OF CONTRACTS

● COMMON LAW ● ● UCC ●


Services, Real Estate, Sales of Goods & Leases of Goods
Governing Law
Insurance, Employment, (Common Law subordinate to UCC; UCC
Other not governed by statute subordinate to terms specified in contract)
Elements of a Contract
AGREEMENT: OFFERS; ACCEPTANCE OR TERMINATION DETERMINATION OF TYPE OF CONTRACT & PARTIES
AGREEMENT Sale of Goods Lease of Goods
OFFER MADE Consumers
UCC Art. 2; CISG (Int’l) UCC Art. 2A
Offer: Acceptance:
YES: Serious intent Unequivocal ● Timely (mailbox rule)
Offer is Detrimental Reliance: Clear & definite terms Silence: knowing accept. / prior dealing Merchants either: (1) Deal Finance Lease: Consumer Lease req:
Irrevocable? - Promissory Estoppel Communicated to offeree Communication (if bilateral) in type of goods involved in lessor buys from (1) Lessor who regularly
- Partial Performance transaction, (2) Represents supplier & leases to engages in leasing/
YES: CONSIDERATION CAPACITY self as knowledgeable, or lessee; obligations selling; (2) Personal/
Option & No (3) Employs a merchant as irrevocable for family lessee; (3) Total
RE Option Legally sufficient value Minors Intoxication a broker lessee payments < $25K
Contracts Offer Revoked Promise to do sth one has no prior Contract voidable Voidable if
commitment to do (“disaffirmance”) person could not
Offer Terminated by Law: Performance of an action one is not Except: marriage, comprehend
Death of Party / Destruction of Prop. AGREEMENT: OFFER, TERMS, ACCEPTANCE
obligated to undertake necessaries, age legal conseq.
Forbearance (refrain from an action that misrepresentation May disaffirm or
Offer Rejected May ratify upon ratify w/in reas. No
one has a legal right to do)
reach age of maj. time after sober Offer (formal or informal) Irrevocable?
Offer Terminated by Law:
Lapse of Time Bargained-for Exchange Mental Incompetence
Results of Terms Left Open Offer Revoked
Must be an exchange, not a gift Void if prev ruled incomp by court
Offer Terminated by Law: NO: past consid., illusory promises Voidable if incomp @ time formed Reasonable price fixed by
Supervening Illegality Price YES. UCC: merchant’s
Valid if comp @ time contract formed parties (or by court)
written & signed firm
Exceptions to Consideration Req.
Offer Accepted Price (unfixed by Other pty. sets reasonable offer; CISG: any offer
Detrimental reliance / P. Estop. LEGALITY
fault of party) price, or voidable reasonably relied on.
Counter-offer Prom. to pay debt barred by S of L
By unauthorized By authorized Charitable contribution Proper form required for formal contracts Due at time & place buyer
mirror-image Payment Terminated
rule applies means means rec’s goods by law
Consideration in Settlements Contrary to Statute Contrary to Pub. Pol.
Illegal: crimes, Torts, restraint of Pickup @ seller’s business /
Accord & Satis. (if amt is disputed) Delivery/ Rejected
usury; trade, exculpatory, home; reasonable time
Release (contract to avoid a claim) timeframe
CONSIDERATION, LEGALITY, CAPACITY Restricted: unconscionable allocated for performance.
Covenant Not to Sue (substitutes a
FRAUD, CONSENT & MISTAKES contract for some other claim; does not gambling, licensing, (proced. / subst.), Until either party cancels
Requirements met for Sundays discriminatory Contract term Counter Offer
bar future collection if breached) w/ reasonable notification
No Consideration, Legality, Materially diff. or
and Capacity? Seller deterines conditional (no
Shipment
Categories of Contracts arrangements mirror-image rule)
Yes
Assortment of
Buyer discretion
BILATERAL: EXPRESS: goods Offer Accepted
Legally Mistakes Usually impossible to
YES: A promise for a promise Formed by words any reasonable means
Prohibited YES: Bilateral of Material Quantity determine unless output or
Unilateral UNILATERAL: IMPLIED IN FACT:
Contracts Fact? requirements contract
A promise for an act; irrevocable once Formed at least in part by parties’ conduct By shipment of
performance has begun non-conforming
Minors and goods
Intoxicated No FORMAL: Req’s for Implied in Fact:
Parties By beginning With non-material changes;
Requires special form P furnished property/service to D; By shipment of
(ex: Cs under seal; letters of credit) P expected payment & D knew or should performance no objection w/in 10 days conforming goods
Fraud, Duress, INFORMAL: have known payment was expected;
Voidable contract is
No Undue Influence, or No special form D had opportunity to reject and did not
avoided by innocent party?
Unconscionability?
CONSIDERATION, LEGALITY,
Enforceability CAPACITY, FRAUD, CONSENT,
Yes See Common Law Processes
Yes MISTAKES, E-TRANSACTIONS
No Valid Contracts Void Contracts

Contract is void TIME OF IDENTIFICATION OF GOODS


Enforceable Voidable
Valid, Unenforceable ID at time shipped,
(all required (optionally avoidable Unenforceable Other Future goods
Voidable contract is Enforceable (legal defense) marked, or designated
Yes elements) by a party) (no contract)
avoided by innocent party? Contract
ID at time of conception Animals
Statute of Frauds (must be in/evidenced by writing or else unenforceable):
ID at time planted; if 12+ months, time crops begin to grow Crops
Interests in Land: RE transactions, options, leases, mortgages, things permanently attached
APPLICABLE LAW FOR ELECTRONIC Electronic One Year Rule: Performance is objectively impossible, or not contemplated by the parties, to ID at time of separation &
Non-fungible Goods part of
TRANSACTIONS: UETA (1999) E-SIGN ACT (2000) transaction? be completed within one year of the day after contract signing designation a larger mass
Collateral/Secondary Promises: exception if “primary purpose” is for benefit of guarantor Fungible
Yes State has enacted unmodified UETA? Yes Marriage: voluntary promises of marriage, pre/post-nups (usually consideration is required) Goods are in
ID on contract formation
UCC: Under UCC, sales contracts $500+ / leases $1000+ must state at least the quantity existence
Mods consistent E-SIGN rules term. UCC exceptions: specially-manufactured goods; admissions; partial performance. Goods Identified
No No No
w/ E-SIGN? govern
Yes
Interpretation
E-contract follows state law PASSAGE OF TITLE / LEASEHOLD;
Other Rules (when meaning in the document isn’t clear) TRANSFER OF RISK Seller’s title
Plain Meaning Rule Seller holds title? Yes was properly
Contract is interpreted as a whole
Contract is enforced No obtained?
Negotiated terms > standardized terms
PERFORMANCE & DISCHARGE according to what it says
Specific language > general ● Written terms > pre-printed Good faith purchaser? No
Conditions precedent/ (“face of the instrument”)
Contract is canceled No Ambiguity punishes author ● Trade usage/prior dealing
subsequent are met?
Title (or leasehold) can
Third Party Rights Void title Yes
pass to buyer (or lessor)
Dmgs for diff. b/t Substantial Shipment
Complete
actual & contracted Performance or Yes Rights can be assigned unless: Duties can be delegated unless: contract (default)
Performance
performance minor breach Prohib. by statute or (generally) the contract Personal services / special trust involved
Title documentation No movement Destination
Mutual rescission Personal services ● Assignment significantly Performance will vary materially
Novation required? of goods contract
changes risks/duties of obligor Prohibited by contract Title passes
Substitute Accord &
Agreement upon delivery
Discharge by Satisfaction Intended Beneficiaries have enforceable legal rights upon vesting. Vesting occurs (unless unless otherwise
No Yes Title passes
Operation of Law contract specifies otherwise) when (1) 3rd party changes position in justifiable reliance; (2) 3rd when seller agreed
party sues on the promise made; (3) 3rd party gives consent on the promise. tenders
Incidental Beneficiaries do not have enforceable legal rights. Title passes on ID Title passes
goods at
of goods (or on upon delivery
BREACH & REMEDIES designated Risk transfer on
Material Breach occurs contract formation) of documents
Mistakes & Fraud location delivery to carrier

Fraudulent Misrepresentation Undue Influence Seller / lessor is a Risk transfer Risk transfer on tender
Misrepresentation of material fact Clear & convincing evidence that the merchant? on delivery of
Damages Waiver of Breach Equitable Remedies at specified loc.
Intent to deceive transaction “induced domination” of a documents
Justifiable reliance by other party weaker party
Compensatory Construction If injury is proven, damages = represented Presumed in relationships of trust &
Yes Risk transfer on receipt
value less price paid (+ punitive damages) confidence & must be rebutted
Owner Breach
Duress Mistakes: Contract remains enforceable No Risk transfer on tender of deliv.
Sale of Sale of Threatened by wrongful/illegal act unless mistake is Bilateral (both parties
Land Goods Before Economic duress if party exacting the made mistake) & mistake of material fact;
During
construction price also created the need OR gross/obvious math error. UCC RIGHTS & DUTIES
Buyer construction
begins
Breach Unconscionability (often: fine print or adhesion contracts): Parties have substantially unequal Duties & Rights of Seller / Lessor Duties & Rights of
Specific bargaining positions, and enforcement of the term would be manifestly unfair/oppressive. Buyer / Lessee
Profits + costs Conforming Goods ● Tender of Deliv.
performance; if Profits
incurred Shipment Contract: Facilitate deliv. with carrier; provide Payment at
land is already Lost
sold, diff. btw. profits Discharge from Contractual Duties buyer nec. docs to get possession; notification of designated time/
shipment. place of delivery
contract price & Contract price After
Performance according to contract terms. Destination Contracts: Deliver at designated location; Right to Inspect
market value Seller + interest completion Discharge by Operation of Law:
reasonable notice; necessary documents. goods and reject
Breach Alteration: innocent party discharged when if non-conforming
Rescission: requires formation of a new Perfect Tender unless (1) parties agree otherwise, (2)
Contractor Breach other materially alters terms w/o consent. Acceptance: (1)
contract w/ consideration. May be oral cure w/in contract timeframe, (3) substitution of carrier; (4)
Consequential Statute of Lims: on suing for breach (UCC
unless RE or req’d in writing (UCC). in installment contract, substantial impairment of entire indication; (2)
contracts on goods: 4 yrs reducible to 1 yr) presumed if
Diff. btw. Novation: substitution of a 3rd party for an contract; (5) unforeseeable commercial impract. (6)
Punitive (rare in Bankruptcy ● Frustration of Purpose reasonable time
contract Before Before original party. Requires: (1) prev. valid destruction of identified goods; (7) reasonable grounds to
contract law) Impossibility: objective, unforeseeable, believe non-conforming goods acceptable; (8) buyer elapsed; OR (3)
price & construction construction obligation; (2) agmt by all parties; (3)
supervening event: (1) party dies, (2) doesn’t specify reason for refusing goods. acts inconsistent
market begins completed discharge of prior party; (4) new, valid
Nominal subject matter destroyed, OR (3) change Warranties (UCC defaults): Title (good title, no liens, no w/ seller’s
value contract with consideration.
in law makes performance illegal. ownership.
Substitute Agreement. infringement); Express, Implied, Merchantability, Fitness
Commercial impracticability: unforeseen for a Particular Purpose.
Liquidated Costs incurred by Accord & Satisfaction: suspends original
and signif. increase in difficulty of Product Liability: Breach of Warranty; Negligence Duties of
(fixed) Cost above owner to complete agmt until new accord is complete. Obligor
performance causing extreme burden. parties met?
contract price work can discharge via orig. contract or accord. (failure to exercise reasonable care; misrepresentation
(tort)); Strict Liability (unreasonable danger; product
Known in advance that Types of Damages defects; design defects; inadequate warnings.)
Amount is a reasonable
damages would be difficult Yes
estimate & not excessive? Compensatory: Direct losses & costs Consequential (special): Foreseeable Discharge by Op. of Law Yes No
to estimate?
sustained + incidental dmgs (costs incurred to damages resulting from consequences of a
Other agreement, Complete
Fixed price schedule rec’v alt. performance), less losses avoided. breach, possibly including lost profits on
Yes mutual rescission, etc. Performance
set by contract items intended for resale.
Punitive (exemplary): Extremely rare in
A party contract law; typically only if a breach also Nominal: Establish technical injury or
Rescission & constitutes a tort, and in limited instances of
Return of goods possesses wrongdoing where no actual loss sustained. BREACH &
Restitution bad faith insurance settlements.
contracted goods REMEDIES Seller Breach Buyer Breach
Liquidated (fixed) Damages: Contractually
Goods have Mitigation of Damages: Innocent party is agreed-upon amounts to be paid in
Market value of Seller Refuses to Deliver Goods in Seller’s Possession
been Reformation required to mitigate damage suffered to the compensation (not penalty) for breach if
goods is substituted Withhold delivery
consumed/sold extent possible. actual dmgs would be difficult to estimate. Cancel & dmgs
& dmgs (diff. btw. contract & resale)
Cover & dmgs
Contractual duties Land, unique Specific Equitable Remedies Rescind & dmgs
must be carried out goods Performance Replevy & dmgs
Rescission & Restitution: Contract is Specific Performance: Court orders a Goods In Transit
Only monetary dmgs Most contracts Quasi Contract Specific
terminated and the parties are returned to party to complete contractual obligation. Stop delivery: damages as above
are available & personal svcs Recovery perf. (unique goods)
their original pre-contract state; goods (or Often RE and unique goods contracts;
Complete delivery: damages as below
equal value) and money returned. never personal services contracts. Nonconforming Goods
Reject & dmgs Goods In Buyer’s Possession
Quasi Contract Recovery: Requires: (1) A
The Law of Contracts by Jeremy Modjeska (http://j.modjeska.us). Reformation: Court reforms contract to Sue for purch. price & incidental dmgs
party has conferred a benefit, (2) with a Revoc. of accept & dmgs
Source material: CLARKSON ET AL., BUSINESS LAW: TEXT AND CASES, conform to parties’ original intent, remedy a
reasonable expectation payment, (3) in a
11TH ED. (Cengage, 2008); American Law Institute & National mistake/fraud, or remove/revise an overly Resell & dmgs
non-volunteer capacity, & (4) w/o recovery, Goods: reclaim Lease: reclaim
Conference of Commissioners on Uniform State Laws, Uniform strict noncompete covenant. (merchant buyers)
the other party would be unjustly enriched. w/in 10 days property
Commercial Code (U.C.C.) (2005).