Contract II Outline
I. General Contract Terms to keep in Mind
a. Acceleration Clause: upon breach the whole sum becomes due
b. Course of Performance: Conduct of parties in performing contract
c. Course of Dealing: Pattern of performance in contracts
d. Usage of Trade: Particular way this particular market handles similar situations
e. Secret of Contracts: CONTRACT RIGHTS HAVE VALUE!
II. Rights & Duties in a Contract
a. Person who makes a promise incurs a duty.
b. The person who accepts the promise has a right.
i. A will buy car for $500 from B. B has a duty to sell & right to $500. A has a duty to give $500 & a right to car. Consideration is creating a duty and right exchange.
ii. When change is made in existing contract there is no longer a pairing.
c. It is possible to change the contract in regards to pre-existing duty rules
i. Attempts to avoid the rule and is widely criticized, but often used
ii. Make sure there is consideration for the revised information. Do something new to serve as new consideration. Does not have to be equal.
iii. In essence, you cancel the original contract.
1. Under the original contract each party has a right and a duty. Then, both parties promise to release their right; entering into a second a contract of release.
2. It is okay to include this with the new contract information. However, it makes it difficult to differentiate that case from one where the intention of one party was not to do it, except for duress.
III. Statute of Frauds: Violation is unenforceable contract
a. Sale of Goods: UCC §2-201
i. Basic Provision in 1
1. Contract for the sale of goods, priced over $500 is not enforceable unless there is some writing sufficient to establish and contract and signed by the party to be charged
a. Signature somewhere is sufficient
b. Can have more than one document: No requirement that everything has to be in one
2. No gap filler for quantity! Must be established in writing
ii. Exception for Merchants in 2
1. If within a reasonable time a writing in confirmation of a contract and sufficient against the sender is received and the party receiving it has reason to know it contents, it satisfies subsection 1 unless written notice of objection to its contents is given within ten days after it is received
iii. Contract that does not meet subsection 1 but is valid for other respects is enforceable if
1. The goods are specially manufactured and not suitable for resale
2. The party against whom enforcement is sought admits in his pleading, testimony, etc. that a contract was made
3. With respect to goods for which payment has been made and accepted or which have been received and accepted.
b. Sale of Services: Restatement §131
i. Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which
1. Reasonably identifies the subject matter of the contract
2. Is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
3. States with reasonable certainty the essential terms of the unperformed promises in the contract
ii. This is federal, states do differ
1. Many jurisdictions have slightly different rules regarding what is required
c. General Requirements
i. Applies to
1. Sale of land
a. Old Way
i. Only the land within the statute, the promise to pay money was not , therefore, if the prior conveyance of land occurs, you could enforce a promise to pay for it
b. New Way
i. If we have the payment by one party to another, and the first, takes possession or begins improvements, we have to explain why that occurred. Presumably, this would not occur without the explanation of promise to convey.
2. Contract not performed within a year
a. General Rule
i. Any contract not performed within a year, has to be in writing
ii. Any contract that is performable within a year does not have to be in writing.
1. Just the possibility of being performed within a year, not definite.
b. Problem of Part Performance
i. If one party can perform within a year, then the contract is not within the statute, even if the other party could not perform within the year
c. Problem of performance by specific person v. anybody
i. Specific to individual: Court says the only person who can perform the contract is that person
1. If that person might die within a year, that contract is within a year
ii. Not specific could be completed by someone else, even upon the death of the original, so that the contract could exceed a year.
3. Contracts over $500
ii. In Writing
1. Contain all of the essential terms: main/significant points
2. Not everything: Some terms can be determined through oral testimony.
a. Oral Testimony is not limited by the statute; can have oral evidence
i. Common uses of oral testimony
1. Explaining the terms/unclear language
2. Used to connect documents
3. Used to show completeness of the document
4. Used to establish the existence of a missing writing
b. Can be used to alter terms
c. Contract does not have to be written for the purpose of memorializing the contract
3. Must be signed by the party to be charged; against whom the contract is to be enforced
1. Part Performance
2. Promissory or Equitable Estoppel
d. Special Notes
i. Surety/suretyship: Debt default or miscarriage of another (co-signors, guarantor)
1. A party having received a good is evidence that a promise was made
2. Only works from the promisor side
3. Evidentiary function is particularly important under suretyship
ii. Restitution for Unjust Enrichment
1. Pay for a piece of property, yet because no writing, you lose it.
1. Does not apply to a novation
a. Agreement whereby a creditor releases the debtor and accepts in exchange the obligation of another party is known as a novation.
2. Leading object or Main Purpose Exception:
a. If there an independent reason for the promise, the contract stands on it’s own
b. It has consideration and only coincidently has the promise to pay a debt of another
3. Promise to the debtor is not covered under the statute
iv. Formalisms/Reasons for Statute of Frauds
1. Evidentiary: Evidence of transaction: if this is the case, it should be done away with
a. Warns the people who engage in the transaction that they are about to engage in something with consequences
b. Cautionary tool is a good thing. Yet is contradicts some of the rules.
e. Statute of Frauds Road Map
i. Does the Contract fall within the statute of frauds?
1. No – oral contract is fine, does not need to be in writing
2. Yes – go to next question
ii. Is the contract reflected in a writing that satisfies the statute?
1. Yes – contract is enforceable
2. No – Go to next question
iii. Does the case fall within one of the exceptions to the statute?
1. Yes – Contract is enforceable
2. No – Contract is not enforceable
IV. Policing The Bargain: Whether or not to enforce the contract based on the conduct of the party
i. Age: Minor
1. Infancy Doctrine
a. The contract of a minor is either void or void-able at his option.
b. Minor may disaffirm the contract at any time before reaching the age of majority, or within a reasonable time thereafter.
i. Disaffirmance must occur before 21 or within a reasonable time
ii. Ratification will occur if he makes a payment after turning 21, or does something else that gives the impression he has reached the age of majority
iv. Although an attempt at modification or recission does not satisfy the requirements of subsection 2 of 3 it can operate as a waiver
v. A party who has made a waiver an executory portion of the contract may retract the waiver by reasonable notification received the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
1. A promise without consideration for it is invalid leads to its logical application that a promise to pay for what the promisor already has a right to receive from the promise is invalid
a. Duress is entering into a contract because of a threat
b. Contracts obtained through duress are not enforceable
a. Can be explicit or implied, action or refraining from action
b. Actual Force or threat of bodily harm
i. Enough to overcome person’s ordinary firmness
c. Threats of legal action:
i. Threats of factual disclosure, aka blackmail, may be permissible. It depends on whether there is any basis for the threat/claim. As long as the threatening party is acting in good faith, even if they are wrong, it is okay
d. Economic Duress:
i. One party has such power that the other party feels like they would be ruined economically if they refuse.
ii. One sided bargain = could lead to overreaching or duress
1. Necessitis Men are not truly free. This is not duress. Trying to get needs is not acting under duress. There has to be something more.
3. Modification of Contract
a. Pre-existing Duty Rule
b. UCC §2-209 – Modification with consideration
c. Promissory Estoppel
i. Restatement §159 Misrepresentation is an assertion not in accordance with the facts
ii. Types of Misrepresentation
1. Innocent Misrepresentations
a. The maker does not know or have reason to know about the misrepresentation
2. Negligent Misrepresentation
a. The make did not know, but had reason to know about the misrepresentation
b. Or somehow negligent in obtaining information about the misrepresentation
3. Gross Negligent Misrepresentation
a. Statement made with reckless disregard to the truth
b. The reasonable person would have known, but the maker asserts that they didn’t know
4. Intentional (fraudulent) Misrepresentation
a. Made with knowledge of the misrepresentation
b. Made with knowledge that it is not true
iii. Subject Matter of misrepresentation
1. Fact v Law
a. Can’t misrepresent statements of law, only statements of fact
b. Can’t defend on idea that you did not know the law
2. Material v Nonmaterial
a. Legal concept that bares a relationship to relevance
b. Means the weight of something.
c. If material it matters, if non-material it does not matter
3. Opinion v Intent
a. Although they are subjective, you can misrepresent opinion or intent
b. Don’t have the same factual standard, but both can be misrepresented
i. Unconscionability equals Overreaching + unfairness
1. Must have both procedural unconsciona