QUICK COURSE OUTLINE '0 FORMATION OFFER TERMINATION 2. Bilateral (see Mailbox Rule Chart below): 1. An offeree's may be a. Requires an exchange of promises. terminated by: b. A valid acceptance (for a bilateral IN GENERAL a. Rejection or counter-offer by the offeree. ) requires that there be an offeree The parties must form an agreement by b. Lapse of time. with the power to accept, unequivocal consenting to the same terms at the same time. c. Revocation by the offeror. terms of acceptance, and communication They accomplish this by the process of offer d. Death or incapacity of the offeror or offeree. of acceptance. and acceptance. Lonergan v. Sea/nick, 129 Cal. e. Non-occurrence of any condition of ••• App. 2d 179, 276 P.2d 8 (1954). acceptance under the terms of the offer. 2. Detrimental reliance makes an offer irrevo- POWER TO ACCEPT Once there is an offer and an acceptance, the cable for a reasonable time (modern view). parties have arrived at mutual assent. Generally, the entity to whom the offer has been a. : No such thing (must go to addressed has the power of acceptance . ••• the UCC-merchant firm offer). 3. Termination by operation of law: OFFER a. Incapacitation of the offeror. UNEQUIVOCAL TERMS OF b. Destruction of the subject matter prior to ACCEPTANCE An offer is the manifestation of willingness to an effective acceptance. enter into a bargain, so made as to justify a Acceptance must mirror the offeror's terms reasonable person in the position of the offeree ••• exactly. Otherwise, the "new" offer with addi- in understanding that her assent to that bargain tional or modified terms becomes a new offer. is invited and will conclude it. A contract is enforceable only if it is supported (Under the UCC, the rule is different. An ••• by consideration. Kirksey v. Kirksey, 8 Ala. 131 acceptance need not be an exact mirror of the (1845). Consideration must be a bargained-for original offer.) INTENT exchange and of legal value. Intent must be manifested through such words 1. Bargained-for exchange: COMMUNICATION OF ACCEPTANCE or acts that a reasonable person would believe a. Parties must exchange something, even if / 1. Mailbox Rule: A contract is formed upon the an offer is being made. Lucy v.Zehmer, 196 Va. it is a . 493, 84 S.E.2d 516 (1954). b. Gifts are not "bargained for" and thus moment of dispatch of the acceptance. This do not qualify as consideration (see assumes that it is properly sent (i.e., properly promissory ). addressed, stamped, and deposited in a ESSENTIAL TERMS OF AN OFFER c. Forbearance will be sufficient if it benefits mailbox). If the acceptance has not been \.J (COMMON LAW) the promisor. properly sent, then acceptance is effective upon receipt. 1. Identification of the parties. d. Past or moral consideration is not valid. 2. Legal value. Note: The Mailbox Rule only applies to 2. Description of the subject matter. a. A party must bear a detriment. acceptances. Other acts (e.g., rejection) are 3. Time for performance. b. A pre-existing legal duty is not consideration. only effective upon receipt. 4. Price. 3. Substitutes for consideration. 2. Exceptions to the Mailbox Rule: a. Promissory estoppel. Note: Silence on some of the terms above a. If the offer stipulates that the acceptance b. Detrimental reliance. may be interpreted to mean that reasonable is not effective until received. (The parties c. Modification under the UCC. terms may be determined at a later date. may contract out of the Mailbox Rule.) ••• (Article 2 of the UCC, which governs the sale b. Option contracts are immune to the Rule. of goods, only requires that quantity be an ACCEPTANCE c. If the offeree sends a rejection and then essential term of the contract-all other terms 1. Unilateral: sends an acceptance, whichever arrives will be filled in appropriately.) a. Acceptance can be done only through first is effective. performance. Ragosta v. Wilder, 156 Vt. d. If the offeree sends an acceptance and 390,592 A.2d 367 (1991). then a rejection, the Mailbox Rule would DURATION OF THE OFFER b. Once performance has started, offeror normally apply. If the rejection arrived first 1. Merchant's Firm Offer (UCC § 2-205): Usually may not revoke the offer. and the offeror detrimentally relies on it, irrevocable. c. Offeree must be aware that the offer exists. the Rule would be inapplicable. I 2. : •• a. Money is paid to keep the offer open for THE MAILBOX RULE ./ a certain period of time . b. Counteroffer does not terminate the power to accept, unless the buyer Timeline . I detrimentally relies on it. Contract is formed unless offeror detrimentally relies on rejection before acceptance arrives. "INVITATION TO DEAL" Do not confuse an offer with an "invitation to VARIATIONS OF THE MAILBOX RULE deal:' The latter is more of the type that would Scenario 1. Rejection arrives first = rejection controls and no contract is formed. be found in catalogs. Note: Crossing offers in the mail that are \.J Timeline . I identical are void and do NOT form a contract. •• Scenario 2. Acceptance arrives first = acceptance controls and contract is formed .

Timeline . I

1 ELEMENTS OF CONTRACTS INCAPACITY, MINORITY 1. Incapacity: Insane persons lack the If a contract is deemed "unconscionable," a ELEMENTS OF A CONTRACT to enter into a valid contract. Intoxicated court will attempt to strike the offending people as well. contract, to be properly formed, needs an clause(s) from the contract and enforce the 2. Minority (underthe age of 18): -"'ef and an acceptance with consideration. rest of the contract. a. A contract made during one's legal minority may be disaffirmed at any time lYPES OF CONTRACTS before or after the attainment of a legal ILLEGALITY majority. Unless and until the contract is 1. Express contracts are formed when the If the subject matter of the bargain is illegal, disaffirmed, it remains binding. are manifested by oral the contract is void. R.R. II. M.H. & Another, b. Other considerations for minority: or written words. 426 Mass. 501, 689 N.E.2d 790 (1998). However, i. If the contract involves necessities 2. Implied contracts are formed if the mutual a few things should be considered: assent of the parties is manifested by (food, clothes, or medical attention), the minor is still liable for the reason- 1. If the subject matter or participation of parties conduct Wood II. Lucy, Lady Duff-Gordon, is declared illegal when the offer is made, the 222 NY 88, 118 N.E. 214 (1917). able market value of the items. offer is revoked as a matter of law. 3. Quasi-contracts ("implied-at-Iaw") are not ii. Once the minor reaches the age of 2. If the subject matter or participation of the technically contracts, but devices created to legal majority, the contract may be parties is declared illegal AFTER formation, avoid . ratified, and thus be made binding. BUT BEFORE performance, then the duties of both parties are discharged under the DUTY TO MITIGATE doctrine of . In most cases, the suing party has a duty to miti- gate damages. If the duty has been breached, it merely serves to reduce (does not bar) recovery. FRAUD T of a fact or promise of future De following types of contracts require the performance at the time the contract was made contract to be in writing in order to be valid: DURESS which induces party to enter into the contract. • Marriage. 1. Physical Duress: Coercive acts (can be to 2. Contract cannot be performed within a year. others beside the victim, i.e., family members) 3. Executor/administrator. may be a valid personal defense to avoid Surety. the obligations of a contract or the forced 5. Interest in land. rescission of a contract PERFORMANCE Contract for the sale of goods at a price of 2. Economic Duress: No defense when one of S500 or more. the parties is in dire need of the subject matter CONDITIONS and the other takes advantaqe of the circum- stances to drive an overly harsh bargain. 1. Promise v. Condition: A promise is a - PART PERFORMANCE FOR A LAND commitment to do or not to do an act that CONTRACT is at the heart of the contract. A condition performance on a land sale contract will is an event which will modify the underlying - e the Statue of Frauds and allow a land 1. Unilateral Mistake: A unilateral mistake of a promise (such as when and if the promise sale to be performed without fulfilling the material fact will not be a defense to contract must be performed). lfitten requirements of the Statute of Frauds. formation. The contract will be enforceable 2. Effects of Condition v. Promise: • Part performance will be satisfied for a despite the mistake of one of the parties. Failure of a promise = Breach. land sale contract if buyer does TWO of the Exception: The non-mistaken party had Failure of a condition = Relief from the 'ng three: reason to know of the mistake by the other obligation to perform. 1. Part payment. party. Only then, does a unilateral mistake 2. Possession. become a defense to contract formation. 3. Improvements on the land. Market St. Associates II. Frey, 941 F.2d 588 TYPES OF CONDITIONS • emitz II. Summit Hills Joint Venture, 312 (7th Cir.1991). 127,538 A.2d 778 (1988). 2. Mutual Mistake: If there is a mutual mistake 1. Categorized by timing: condition precedent, of a material fact concerning the bargain, the conditions concurrent, condition subsequent. parties may engage in a rescission of the 2. Categorized by source: express conditions, contract. Shetwood II. Walker, 66 Mich. 568, implied-in-fact, implied-at-law conditions. 33 N.w. 919 (1887). Older to be valid, a contract for a sale of 3. Mistake in Transmission: "Scrivener's error:' requires the following elements: If there is an error in transmission differing CONDITION PRECEDENT • Some writing (at least the quantity); and from the parties' original intent, then they Condition must occur before performance is 2.. Be signed by the party to be charged. may reform the contract to reflect the origi- due. Once condition occurs, then performance under the Statute of Frauds, the nal terms of the intended bargain. must happen. Oppenheimer & Co. II. Oppenheim, presented can be informal in nature If one party is aware of the mistake (to an Appel, Dixon & Co., 86 N.Y.2d 685, 660 N.E.2d a scribbled note that contains the quantity essential term) or should have known of 415 (1995). or a check), and may be spread out the mistake in transmission, then the other ....,r ~""'V documents. Crabtree II. Elizabeth party may use the mistake as a defense CONDITIONS CONCURRENT 305 NY 48, 110 N.E.2d 551 (1953). to formation. Conditions to occur at the same time. If one condition has occurred, then the other must PTlONS TO THE STATUTE OF FRAUDS occur as well. tory Memo Rule (Between Merchants). -.us rule applies only between merchants. CONDITION SUBSEQUENT :here is a written confirmation sent (within a reasonable time) after the two merchants have Condition cuts off already existing duty. Once rome to an oral agreement. If the recipient of the memo does not object to the contents of the this occurs, duty to perform is excused. ::leIIlO, then the contract is valid (despite the requirements of the Statute of Frauds). Example: In a contract, a clause containing a UCC § 2-201 (2) condition subsequent will state: "I am liable to are specifically made for the buyer (the goods must only be usable by the buyer). perform this promise until (the occurrence):' ISSION by one of the parties that a contract was made. contract has already been performed (the goods have been received and accepted or paid :: r'faobe v. Hart, 114 N.C. App. 52, 441 S.E.2d 172 (1994). Performance continues on page 3~ IMPUED-IN-FACT CONDITION EXCUSE OF CONDITIONS PAROL RULE Implied-in-fact conditions arise by physical or However, there are intervening factors that may t. Prior or contemporaneous negotiaOOns moral inference from what the parties have prematurely "discharge" a duty, thus relieving a and agreements that contradict or expressed (i.e., reasonable expectations of the party of fulfilling the earlier promise. contractual terms are legally irreIeYafIt , parties). Jacob & Youngs, Inc. v. Ken~ 230 N.Y. written contract is intended as a compIere t, (applies only to 239,129 N.E. 689 (1921). and final expression of the parties. bilateral contracts). Hochster II. De La Tour, 2 Ellis. & BI. 678 (1853). a. "Merger clause": A clause induded ~ IMPUED-AT-LAW (CONSTRUCTIVE) the contract intended to buttress the a. The anticipatory repudiation must be CONDmON presumption that the written contrad. is unequivocal, definite, and communicated "Constructive" conditions function to fix the a complete and final expression of the before the time of performance (must be order of performance when the express terms parties. ARB Inc. v. E-Systems, Inc., 663 more than a mere expression of doubt). of the bargain are silent in this region. F.2d 189 (D.C. Cir. 1980). b. Upon the anticipatory repudiation, the b. Such a contract outlined above is said non-repudiating party may: DUTY OF PERFORMANCE be "integrated." Once a condition has been met, a duty of i. Suspend own performance and sue 2. Exceptions to the performance arises. other party immediately, OR (evidence of the following may be admitted ..•. ii. Affirm the contract and await the due despite the Parol Evidence Rule): date for performance. a. Subsequent modifications to the contract SATISFACTION OF DUTY 2. Waiver: A party may voluntarily relinquish a b. Collateral agreement. Performance is the most desirable way to known contract right, such as a condition c. Formation defects. or a contract, thus excusing the underlying "discharge" a duty that arises from a contract. d. Ambiguous terms. Once a party performs a duty required by a condition or promise. Clark v. West, 193 N.Y. e. Existence of a condition precedent contract, that duty is "discharged:' 349, 86 N.E. 1 (1908). ..•. 3. Estoppel: If a party who has the protection f. Partial integration. of a condition precedent or concurrent DISCHARGE OF DUTY creates an impression that she will NOT insist upon its satisfaction, and the other SUBSEQUENT ASSIGNMENTS Duty to perform may be discharged by one of party reasonably relies on such, the Subsequent assignments automatically revoke the following methods: advantaged party will be estopped from the former ; an assignment in writing t. Impossibility: As measured by the objective insisting upon satisfaction. standard, the impossibility must arise after is, however, irrevocable. If the assignments are the contract was entered into. The destruction 4. Prevention or Failure to Cooperate: If a "equal:' then usually one applies the ''American of the subject matter of the contract gives rise party wrongfully prevents a condition from Rule": first in line is first in right. to an impossibility, as does the subsequent occurring, whether by prevention or failure passing of a law that renders the contract to cooperate, she will no longer be given the matter illegal. And if the services required in benefit of it the contract were unique to one person (such 5. Substantial Performance: r~ijE~~ij~9_F&9,.jRACT",- as an artist or performer), then the death of a. Only applies to where implied-at-Iaw the person will give rise to impossibility and (constructive) conditions are involved. discharge the duty inherent in the contract. MATERIAL v. MINOR BREACH 2. : Occurs when subsequent b. Where a party has almost completely t, Material breach: One may suspend factors have rendered the cost of performing performed her duties, but has breached performance AND sue for damages. a contract grossly in excess of what was in a minor way, forfeiture of a return performance may be avoided by this K & G Contr. Co. v. Harris, 223 Md. 305, foreseen. The key is whether the unreason- 164 A.2d 451 (1960). able increase in price was foreseeable. If it rule. 2. Minor breach: One may only sue for was foreseeable, the impracticability may [Remember, substantial performance does damages (which may be nominal). It is NOT be used to discharge the duty. not apply in the sale of goods (Article 2) important to remember that this does context; the "perfect tender" rule applies.) 3. : Occurs when a NOT suspend the duty to perform. subsequent development not foreseeable at 6. Conditions may also be excused by Walker & Co. v. Harrison, 347 Mich. 630, the time of entering the contract completely impossibility, impracticability, or frustration. 81 N.w.2d 352 (1957). destroys the purpose of the contract (as ..•. 3. The test for materiality for a breach weig understood by both parties). several factors: 4. Rescission: Duties to a contract may be re- CROSSING OFFERS a. The benefit received by the injured scinded by mutual agreement of both parties. (non-breaching) party. 5. : If there are two crossing offers that are identical a. Novation substitutes a new party for an and are mailed at the same time to the other b. Adequacy of compensation for the original party to the contract. party in such a way that they cross in the mail, injured party. b. All parties must assent to the substitution. a contract is not formed. c. The extent to which the non-injured c. Once the substitution occurs, then the (breaching) party has partly performed. original party is released from the contract d. Hardship to the non-injured party. 6. : An accord and e. Negligence or willful behavior of the satisfaction releases debtor from a disputed PAROL EVIDENCE RULE breaching party. debt through a new agreement. A valid f. The likelihood that the breaching accord and satisfaction must have consider- partj will perform the remainder of contraa, ation and the amount paid to satisfy the debt INTERPRETATION OF TERMS must be less than the debtor was originally t, Ignorant party wins against knowing party. entitled to. Restatement § 201. a. If the debt is undisputed. there is no LATE PERFORMANCE 2. When both parties knew of the differing accord and satisfaction. intent, there is no contract t, Usually a minor breach. b. There is no consideration involved in 3. In order of preference: 2. May become a material breach only releasing someone from a debt that is agreed upon-the debtor may seek a. Express terms. a. Contract requires timely performer additional payment. b. Course of performance (negotiations). (usually UCC). c. If the debt is disputed, then there is a c. Course of dealing (previous contracts). b. Contract contains language such C5 valid accord and satisfaction. d. Usage of trade. is of the essence:' ~ ~ 3 THIRD-PARTY RIGHTS 3. Consideration is not needed; a gratuitous DAMAGES assignment is effective. Speelman v. Pascal, 10 NY2d 313,178 N.E.2d 723 (1961). THIRD-PARTY BENEFICIARIES MEASURE OF DAMAGES 4. Subsequent assignments revoke the former The third party must have been present at the assignment. However, an assignment 1. Contracts for the Sale of Land formation of the contract. If third party was becomes irrevocable if there is one of the Contract price added later, look into assignment or . ..•. following: - Fair market value a. Consideration. Damages THIRD-PARTY BENEFICIARIES b. Writing. may be requested, 5. A valid assignment creates since land is unique. Parker v. Twentieth between the obligor and the assignee while Century-Fox Film Corp., 89 Cal. Rptr. 737, ~ extinguishing privity between the obligor and 474 P.2d 689 (1970). ~ the assignor. 2. Employment Contracts a. Employer breach: Full contract price ENFORCEMENT - Wages earned elsewhere after breach Damages ". . Assignee may sue the obligor. Obligor cannot ; I. raise any defenses that the assignor may have b. Employee breach: against the assignee. • • Cost of replacement (to find another employee) - Wages due to the employee ENFORCEMENT ASSIGNMENT Damages • A creditor beneficiary may sue the promisor OR the promisee (not both). Lawrence v. Fox, 3. Construction Contracts: Jacob & Youngs v. Contract 20 NY 268 (1859). Kent, 230 N.Y. 239, 129 N.E. 889 (1921). • A donee beneficiary may sue the promisor but a. Builder breach: may NOT sue the promisee unless there was i. Non-performance: owner recovers cost detrimental reliance. of completion. ii. Deficient performance: diminution in market value is the measure of INTENDED BENEFICIARIES damages. (Cost of completion would unjustly enrich the owner.) Only intended beneficiaries have contractual b. Owner. breach: lights. Incidental beneficiaries do not. Intended Cost beneficiaries are usually: + Expected profit 1. Identified in the contract; OR • 2. There is some indication by the original Damages parties to intend a benefit. DELEGATION OF DUTIES

IN GENERAL OTHER DAMAGES VESTING 1. Most duties may be delegated with the 1. Consequential Damages: Damages must - • party beneficiary may only enforce a following exceptions: have been foreseeable at the time of if her rights have vested. a. Duties involving personal judgment entering the contract. Hadley v. Baxendale, _ -;1Jee ways a third party vests her rights: and skill. 9 Exch. 341, 156 Eng. Rep 145 (1854). Detrimental reliance. b. Changes the obligee's expectancy (such 2. Punitive Damages: Usually reserved for £WIg of a lawsuit (can only assert rights as requirements and output contracts). and are unusual in a commercial contract time of suit). c. There is a contractual prohibition on case, but have been applied in cases by c. :.d party accepts in a manner expressly delegation. insureds against their insurance companies !!ed by the original contracting parties for failure to settle or defend in \'eSted, original parties may freely 2. Generally, a delegator remains liable on the contract, even if delegate has expressly (Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198 (1958)), and in beneficiary has no greater rights assumed the duty. other limited contexts. Nicholson v. United contracting parties. 3. When obligee consents (expressly) to a Pacific Ins. Co., 219 Mont. 32, 710 P.2d transfer of duties, then this is an offer of 1342 (1985). novation, and the original delegator is relieved of any liability. 3. Specific Performance: Available for land and unique goods, but not for services. Note: This is different from a novation.

.~::r.-==I!'O!adequately describe rights DELEGATION

L: 1...0= ,:=o~.•"" and manifest an intention to those rights in the assignee. Contract OT be assigned: re contract are generally

!'!.ssb:.;e-;tof rights is banned if it will .~=-::1,,1v change the obligor's duty. • ~ Requirements contracts are ;;0;: as:;g;-1abI1e. substantially changes the 's UCC: nssignment is permissible if reasonable. •