CONTRACT FUNDAMENTALS

POLK COUNTY BAR

2014

MICHAEL J. STREIT1

As an Iowa lawyer you will start every contract issue or matter with an analysis first addressing whether there is a contract, then breach, etc. The key for any contract dispute is the basics --- Contract 101.

This approach can solve many seemingly complex cases. Approaching every contract problem with the FUNDAMENTALS will always start you off on the right foot.

1 Contracts Law BarBri Outline

1 CHECKLIST TO CONTRACT:

Intake Questions:

 Is there a deal? Was a deal or agreement made?

 If there is a deal, how do courts enforce deals?

 Assuming there is a deal, is there any reason for the court not to

enforce that deal?

 What is the deal exactly? What was agreed to?

 Once we know what the deal is, did anyone not do what he agreed to

do?

 If someone didn’t do what they agreed to do, did they have an

excuse?

 Does anyone other than the two folks who made the deal, have legal

rights b/c of the deal?

Is there a deal?

Issues to consider in formation questions:

 Was there ever even a deal proposed? Did we even have an offer?

 Did the proposal die out? Was the deal stale? Was the offer

terminated?

2  Was the deal for the offer accepted?

 What Law?

o U.C.C. Article 2 – Sale of Goods;

o Common Law: everything else

OFFER AND ACCEPTANCE

 Offer—commitment—has it been terminated—words to offeree—

indirect rejection—who accepted and how did they accept it

 Offer – need manifestation of a commitment through words or

conduct.

 Look for content to see if is an offer

 Look for missing terms—see if communication seems

incomplete. All material terms not necessary – only important

terms

. Real Estate: Price and description is must – a deal

breaker

. UCC Article 2: communication can be an offer even

though there is a missing price term

. “fair” “reasonable” “appropriate”- indicate no commitment

 Termination – once an offer is terminated, it is gone forever.

3 . Lapse of Time – the offer is open only so long as is specified

by its terms, if not time is not included the offer is open for a

reasonable period of time. Options.

. Death of either party – offer dies with person

. Revocation of offer

 Acceptance – once the offer has been made and there’s no problem

with rejection, you must then look to the acceptance. Look at who is

accepting. How they are accepting.

 Offer is Accepted by performance: Manifestation of mutual

assent.

 Unilateral contracts: where offer requires performance to

accept—this does not create a bilateral contract.

 Notice of acceptance — acceptance has to be communicated;

 Iowa Mail Box Rule: It is all about timing – where parties are

contracting from distance. RULE OF ACCEPTANCE

 Contract Enforcement by Courts

4  Specific performance—court will order person to do what person

agreed to do; equitable remedy — money damages are

inadequate.

. Real estate deals fall under this category

. Art or antiques

. Never used for services or employment contracts.

 Money damages

. Punitive damages—never for breach of contract. Iowa has

set of cases with discussion of this but it is rarely allowed,

even if couched in terms of a deliberate breach of contract

with evil intent and a disregard of the contract rights of the

other contracting party

. Liquidated damages — cannot be a disguise for penalty.

. Expectation damages — general standard for damages – an

effort to make the world the same as it would have been had

contract been performed.

. Consequential damages – they are recoverable only if

foreseeable (in contemplation) by both parties at time of

contract. Hadley v. Baxendale: Mill equipment not delivered.

5 Why not enforce the deal?

 WHO MADE DEAL?

 Lack of capacity makes contract unenforceable.

. Person under age of majority. Ebay traders. Internet

contracts.

. Intoxication

. Mental incompetence

 HOW WAS DEAL MADE?

 Duress—not just physical duress but economic duress too

. Changing the deal—modification in contracts

. Undue influence

. Unfair threat

. Misrepresentation

 Mistake: Mutual: the contract can be rescinded.

. “basic material fact” then deal is not enforceable. Value is

never a basic material fact. E.g. Antiques Road Show.

. Unilateral mistakes: not a basis or defense for contract

formation

. Mistakes of Fact

6  Unconscionability: They are questions of law. Court can refuse

all or part of agreement because the terms are oppressive or

presented in a way that they unfairly surprised the other party

. procedural unconscionability

. substantive unconscionability

 CONSIDERATION: In order for a contract to be valid, there must be

consideration or a consideration substitute.

 Legal Detriment – the promisee must show that he suffered

some bargained for legal detriment. Detriment entails doing

something, promising something, promising to forbear or

refraining from doing something there is a legal right to do.

 Iowa recognizes benefit alone is sufficient to provide

consideration. BUT, if you are reaching for this to provide

consideration you might want to step back to see if your focus

is true.

 Promises – a bargained-for exchange of promises

. past consideration not new benefit or detriment

. There is no such thing as past consideration.

7 . Pre-existing legal duty is not a detriment – exept under

UCC: good faith change in contract will be OK for

modification. UCC §89

 CONSIDERATION SUBSTITUTES

o Promissory estoppel

 Statute of Frauds: certain important agreements have important

subject matter or susceptible to fraudulent claims – MY LEGS AT

HOME

 Marriage : prenuptial agreements

 Personal services contracts not capable of being performed in 1

YEAR. Iowa minority: if the contract can be cancelled by either

party, they could do that and there is a possibility of it not taking

a year.

 Land: Transfers of interest (sale or lease) in real estate – If the

interest in real estate is for more than one year.

 EXECUTOR: Promises by executor to be personally

responsible for the debts of estate.

 Goods: goods of $500 or more.

 SURETY: or guaranty of debt of another -- a true surety. The

surety must have no personal concern in the obligation.

8  At Home: The sale of homestead interest

 Satisfying the State of Frauds

 Part performance can satisfy the St./F in real estate dealings if two

or more of the following occur: Iowa – only one of these is

required:

1. partial payment by the buyer

2. possession by the buyer

3. improvements made by the buyer

 Partial delivery in the sale of goods of $500 or more (UCC §2-201)

 Full performance

 A writing — with all necessary important terms, signed by party

against whom you are seeking enforcement.

 Judicial admission or pleading admitting a contract (“Yea – but you

didn’t get it in writing.”)

 Promissory estoppel -- probably more like part performance.

Need clear definite promise or agreement, detrimental

reliance, that is reasonable and foreseeable, and equity is

with you.

9  PAROL EVIDENCE RULE: A final written agreement -- parol

evidence rule will prevent evidence of prior or contemporaneous

oral or written discussions that contradict the written agreement.

Parol evidence is not a rule of evidence — it is a substantive rule.

 There MUST be a WRITTEN CONTRACT (if there is nothing in

writing you never get to the parol evidence rule). Integrated

agreement – writing intended to be the final agreement.

 ONLY applies to matters happening before contract. Does not

affect modifications of contract, or evidence going to validity or

existnce of the contract, fraud, etc.

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