for Minnesota Exam
Analysis: Questions to ask when confronted with a contracts problem.
· UCC or common law?
· Formation ok?
· What are the terms of the contract?
· Parties performed?
· What are the remedies?
· Is there an Excuse for non-performance?
· Are there any 3rd parties involved?
I. Types of Contracts
A. General; a Contract is a legally enforceable agreement or promise.
B. Quasi contract is not a contract, but an equitable remedy given by courts
1. must have conferred benefit, reasonably expected to be paid, and unjust enrichment.
2. the measure of recovery is not the contract price, but the amount of benefit conferred.
C. Unilateral
1. The offer specifies that the only way to accept is by performance.
2. prize, contest, reward.
D. Bilateral
1. Every other situation.
E. UCC
1. applies only in cases where the issue is about a sale of goods.
2. if mixed contract, the larger part wins (all or nothing).
a. Exception if contract divides payment (then it can remain split)
II. Formation
A. How formed?
1. offer- manifestation of intention to contract (reasonable person would have believed assent would create a contract.
a. Leaving out material terms
1) Common law- needs price
a) Requirements contracts
(i) OK if missing quantity.
(ii) Words like All, exclusively, solely, only, etc.
(iii) Increase? Ok if in line with prior demands (25% or less
)
2) UCC- ok
b. Advertisements
1) Not offer
2) Exceptions
a) Reward or
b) Specific quantity and who may accept
c. Vague or ambiguous material terms
1) NO
2) NOT words like appropriate, reasonable, fair..
2. termination of offers
a. lapse
1) if indicated in contract or
2) reasonable time
b. death
1) or incapacity of either party
2) after offer and before acceptance
3) EXCEPT
a) Options
b) Part performance
c. revocation
1) clear statement or action by offeror to offeree
2) multiple offers is NOT revocation
3) need unwillingness or inability to contract
4) Can’t revoke after accepted
5) unrevocable offers
a) option- need consideration and specific words
b) UCC firm option rule
(i) Offer by merchant
(ii) To sell/buy goods
(iii) Written and signed by merchant
(1) Merchant is any business experience
(iv) NO consideration required.
(v) Up to 3 months if stated,
(vi) If not stated, ct decide up to 3 months
c) Detrimental reliance
(i) Reliance that is
(1) Reasonably foreseeable
(2) Detrimental
d) unilateral acceptance
(i) must have unilateral offer
(ii) performance must have begun
(1) not mere preparation
d. rejection
1) direct- clear words between parties
2) indirect-conduct
a) counteroffers KILL
(i) not mere bargaining
b) conditional acceptance Kills
(i) words; if, only if, provided, so long as, but, on condition that..
c) mirror image rule
(i) common law
(1) any response that is not mirror image is rejection
(2) words of offer and response must be complete match.
(ii) UCC- NO
(1) As long as it merely adds terms, still acceptance.
(2) Can’t have condition or new terms.
(3) Additional terms part of new contract YES if
(i) Both merchants
(ii) Not material term
(iii) Not object within 10 days.
3. acceptance-
a. How it happens;
1) Actions-
a) YES
b) Common law- terms of counteroffer replace.
c) UCC limited to terms of common to both parties
2) Full performance- YES
a) Notice An Excuse;
(i) If contract requires notice, then only if
(1) Offeree has reason to believe offeror wouldn’t know
3) Part performance
a) Implied promise to perform- bilateral contract
b) Unilaterial contract NO- need full performance (but offer is unrevocable)
4) Only words
a) Promise for promise
b) Ok unless contract otherwise specifies
c) Promise is enforceable.
5) Mail box rule-
a) Generally acceptance when mailed
b) Otherwise when received
c) But if rejection mailed, then acceptance, whichever received first.
6) Wrong goods
a) Yes contract and then breech
b) Unless accommodation (explanation)
b. Who can accept
1) Need to know about offer (only problem with rewards)
2) Must be the person to whom it was made
a) Offers may not be assigned
b) Options may be assigned (unless specified)
B. NOT enforceable contracts- are legal agreements, but not enforceable in ct
1. lack of consideration
a. bargained for legal detriment
b. ≠ matter how adequate
c. Preexisting legal duties
1) Common law
a) Need new consideration to modify contract
b) Unforeseen difficulty don’t need new consideration
2) 3rd party promise ok
3) UCC
a) Don’t need new consideration
b) Need good faith
d. Timing
1) Past actions do not count as consideration
a) Except if ask for help and expectation of payment
e. Settling of debts (release of debt)
1) If debt is due and undisputed
a) Part payment is NOT consideration
2) If debt is not due or disputed
a) Part payment is consideration
f. Exceptions/ consideration substitutes
1) Written promise to pay legal obligation OK (enforceable to $ in writing)
2) Promissory estoppel/not bargained for
a) Detrimental reliance
(i) Promise
(ii) Reliance that is reasonable, detrimental and foreseeable
(iii) Enforcement necessary to avoid injustice
2. lack of capacity-
a. what
1) infant
2) incompetent
3) intoxicated
b. rights
1) can disaffirm
2) but can still enforce against other party
c. implied affirmation
1) after gaining capacity, get benefits
2) NOT a defense anymore
d. Quasi-contract liability for necessities
1) Legally obligated if for necessities
2) NOT contract price/ value of benefit conferred
3. Statute Of Frauds
a. Purpose
1) To stop p’s from claiming that there were contracts when they are just making it all up.
b. Within?
1) Limited areas
a) Promises to answer for debts of another
b) In consideration of marriage
c) Promises by executor to pay debt personally
2) Service contract that can’t be completed in 1 year
a) Task ≠ within
b) Lifetime ≠ within
c) Specified time longer then year WITHIN
(i) Early termination issues not matter
3) Transfers of real estate
a) Except leases under 1 year
4) Sales of goods
a) 500$ or more WITHIN
b) Less then 500$ ≠ within
c. Requirements?
1) Need special proof
2) Performance
a) Common law/services
(i) Part performance not enough
(ii) Full performance ok
b) Common law/real estate 2/3
(i) Payment (full/partial)
(ii) Possession
(iii) improvements
c) Sales of goods
(i) Ordinary goods
(1) Part performance ok (to level of performance)
(ii) Special goods
(1) Substantial beginning
3) Writing
a) Signed by person claiming no contract
b) Common law
(i) All material terms test
(ii) Who (both parties) and
(iii) What
c) UCC
(i) Need quantity
(ii) Or if
(1) Both merchants
(2) Signed writing (with either) with quantity
(3) No response within 10 days
(4) OK against either
4) Judicial admission
a) Party using defense Admitted there was an agreement
b) In some kind of judicial arena
c) Usually “we agreed, but never put it in writing”.
d. Defenses?
e. Other
1) Agree for another
a) If entering into contract for someone else
b) SOF need written evidence of your authority
2) Contract modficiations
a) If modified contract would be in SOF then is within
b) All modifications in writing clause
(i) Common law NOT effective
(ii) UCC ok effective unless waived
c)
4. existing laws/illegality
a. if illegal not enforceable
b. if illegal purpose, not enforceable to parties who knew of illegal purpose
5. public policy
a. usually exculpatory contracts, can’t contract away gross negligence or intentional torts
6. misrepresentations
a. false assertion of fact (don’t need fraud or bad faith)
7. duress
a. physical, but also cts starting to recognize
b. economic (need really bad guy and vulnerable guy)
8. unconscionability
a. ct discretion
b. very bad, both in content and making
9. misunderstanding/ambiguity in the words of agreement
a. if material term open to at least 2 interpretations
b. each party had different meaning
c. neither party knows about the clash
10. mistakes
a. mutual mistake of material fact @ time of agreement
1) both parties mistaken
2) basic assumption of fact
3) materially effects agreed exchange
4) not risk that either party bears. (lately seller has risk to know what selling)
III. Terms of contract
A. Disagreement in content of agreement
B. Parol evidence (look at purpose of evidence)
1. excludes evidence from before or during an agreement as to terms that conflict with written agreement.
2. written agreement must be fully integrated (meant as final and complete)
a. says “fully integrated” persuasive, not conclusive
3. reformation
a. equitable action to modify written contract to reflect actual agreement
4. purpose
a. not for
1) contradicting written deal
2) changing terms of written intergration
b. FOR
1) Post contract evidence
2) Evidence that explains a term
3) Adding to written agreement if
a) Wouldn’t have been in agreement anyway or
b) Not written agreement complete
5. exceptions
a. typos
b. getting out of written deal (recission)
C. content of terms
1. words of contract
2. conduct
a. course of performance –same people/same contract
b. course of dealing- same people /diff. contract
c. custom and usage- diff people/ diff. contract (similar)
3. UCC
a. Default terms
1) Obligations of seller
a) Common carrier
(i) Shipment contracts – to get it shipped off
(1)
(ii) Destination contracts – to get it to buyer
(1)
b) Risk of loss
(i) Timing and something gone bad, no fault try each of the following in order
(ii) Agreement terms control
(iii) Breeching party takes loss
(iv) Common carrier and seller completes obligations then buyers loss
(v) Seller merchant?
(1) Yes, shift upon receipt,
(2) No, shift when goods tendered (out of control/available for pickup)
4. warranties of quality
a. issue; good enough?
b. express “specific words can use to judge” not just good, best etc.
c. implied warranty of merchantability
1) fit for ordinary purpose of goods
2) need merchant (narrow)
3) automatic
d. implied warranty of fitness for particular use
1) buyer has particular purpose
2) seller knows
3) buyer relies on seller to pick goods
e. contractual limitations on warranty liability
1) disclaimer- conspicuous, “as is” “with faults”
a) can’t disclaim express warranties,
b) OK to disclaim implied
2) limitation of remedies for warranty in contract
a) test unconscionability- assume if personal injury
b) OK express and implied
IV. Performance
A. Common law
1. substantial performance
B. UCC- sale of goods
1. perfect tender
2. must be perfect or buyer option to reject
a. rejection
1) buyer can reject all or any commercial unit and sue
2) buyer can keep and sue
3) limited by
a) cure- can’t reject if reasonable grounds to think could cure or time for performance hasn’t expired
b) installment contract
(i) reject only if substantial impairment (part or whole) and can’t be cured.
c) acceptance of goods
(i) can’t reject after accept
(1) accepting
(2) payment is accepting if after opp. To inspect
(3) delay (1 month or more)
(ii) but can revoke acceptance
(1) revocation
(2) nonconformity substantially impairs
(3) excusable ignorance
(4) reasonable time
V. remedies for breech
A. ≠ $, non monetary (in rem)
1. specific performance
a. usually NO
b. only if money really not enough
c. real estate yes
d. sales of goods
1) only for unique goods; antiques, art, custom made
e. services
1) NO maybe injunctive relief
2. UCC reclamation
a. Unpaid seller gets stuff if
1) Buyer insolvent when got
2) Seller demands within 10 days
3) Buyer still has stuff
3. entrustment
a. if give up goods to merchant (of that kind) then good faith purchaser after wins.
B. $ monetary- ways
1. Expectation interest
a. Compensate P to make as if ‘same economic position as if contract had been performed”
b. Always use this for UCC
1) normal
2) Lost volume seller
c. Always use for others unless specified.
2. protection of reliance interest
a. Protect P from contract.
b. Measure; like contract had never happened to P (what p spent)
3. protection of restitution interest
a. stop D from profiting
b. like contract never happened to D (how D profited)
4. consequential damages
a. special. Need special damages to P and foreseeablility to D
5. liquidated damages
a. set amount for breach (in contract)
b. ok if not penalty (hard to determine after, flexible)
6. incidental damages
a. always recoverable
b. cost of finding replacement after breech
7. test
a. reasonable certainty of loss (look for new business)
8. avoidable damages
a. subtract from total if could have been avoided without much burden to P *proof on d
VI. Excuse
A. Because of something that happened after contract made, Ok to breach
B. Because of other guy’s performance
1. common law
a. material breach- is excuse
1) is fact question
2) more then ½ is material
3) exception- divisible contract
b. non material breach
1) not excuse, but can get damages
2. UCC
a. Perfect tender rule
b. Not need material breach
C. Because something didn’t happen (condition)
1. condition is contract term
a. if the condition modifies obligations not creates.
b. Words; if, only if, provided that, so long as, subject to, in the event that, unless, when, until and on condition”
2. Standard strict compliance
3. exceptions (probably not tested)
a. good faith
b. avoidance of forfeiture
c. waiver/estoppel
4. WHEN
a. Condition precedent
1) Before obligation to perform
2) Can excuse ANY performance
b. Condition subsequent
1) After start of performance
2) Excuses further performance
D. Anticipatory repudiation
1. clear by actions or words other party not going to perform
2. gives immediate claim for damages
3. UNLESS
a. Claimant already finished performance (then wait until time up)
b. Ok to retract/repudiate if other party
1) Not material change
2) Adequate assurance
E. Insecurity
1. word or actions show
2. reasonable grounds for insecurity
a. can demand adequate assurance
b. can hold performance until get (if commercially reasonable)
F. Later contract?
1. recession/ cancellation
a. before completes performance OK valid recession
1) can’t recover under contract law
b. after p completes performance NOT VALID
2. accord and satisfaction (substituted performance)
a. new agreement to accept different performance to replace
b. accord is new agreement
c. satisfaction when perform under new agreement
d. THEN original performance is excused
e. IF NOT satisfied then can sue under original or new contract.
3. modification (substituted agreement)
a. new agreement “satisfies old obligations”
b. can’t sue on original agreement
c. Excused as soon as agreed to.
4. Novation (substutited person)
a. Both original parties transfer rights/obligations of old contract to new party.
b. New one liable
c. Old one excused
5. after unforeseen occurance
a. need
1) unforeseen
2) after agreement and before full performance
3) pretty much impossible to fulfill.
a) Damage- if makes impossible
b) Death- only if special person
G. Subsequent law or regulation
1. excuse by impossibility
a. if performance is illegal
2. excuse by frustration of purpose
a. if mutually understood purpose is illegal
VII. third party problems
A. 3rd party beneficiary (life insurance ex)
1. terms
a. promisor is the insurance co
b. promisee is dead guy
c. creditor/donee is person who is intended to get money
1) need intent
2) Need named in contract
2. cancel or modify contract?
a. Yes unless
1) 3rd party knows and relies
3. Who can sue?
a. beneficiary (donee) from ins co. (promisor)
b. promisee Dead guy, from ins.
c. NOT beneficiary (donee) from dead guy (promisee)
d. creditor from dead guy if preexisting debt.
4. Defenses
a. same as against promisee
5. assignment of rights
a. what; transfers of rights to 3rd party
b. terms
1) assignor- person giving rights
2) assignee –person getting rights
3) obligor- other original party
c. limits
1) contract provisions
a) “prohibits”- effective to a GF assignee, assignor can be sued for breech.
b) “invalidates, void, no transfer”. Not valid, not recognized.
2) Common law
a) ≠ valid if Substantially changes duty of obligor
d. requirements
1) ≠ need consideration but if gratiutious OK to revoke
2) Need present assignment (not future, or promise to collect)
e. who can sue
1) assignee can recover from obligor
2) assignor for consideration can’t sue against obligor
3) obligor has same defenses
4) payment by obligor to assignor effective until they know
5) implied warranties of assignor
a) only transfer if consideration/value.
b) Implied warranties
(i) Right assigned exists
(ii) ≠ subject to defenses by obligor
(iii) Assignor wont do anything to muck it up
B. Multiple assignments
1. gratuitous assignments= LAST IN TIME
a. last assignee wins
b. can be revoked
c. exceptions …
2. for value = FIRST IN TIME
a. amount doesn’t matter just as long as there is some consideration
b. limited exception
1) Good faith purchaser and
2) First action
a) Judgement
b) Payment
c) Novation
d) Indica of ownership
c. First to notify/record doesn’t matter
C. Delegation of duties
1. use language of assignment
2. what; transferring performance of contract
3. different from assignment because this 3rd party is not part of contract
4. OK
5. limits
a. if contract says no
b. if contract re; very special skills or reputation
6. what if no performance?
a. Delegating party still liable
b. Delegate liable if got consideration from delgating party.
c.
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