CONTRACTS
1. IS THERE A BARGAIN AND WHAT IS IT?
2. SHOULD IT BE ENFORCED?
3. WHO HAS ENFORCEABLE RIGHTS?
4. ARE THE DUTIES ABSOLUTE OR CONDITIONAL?
5. WHAT REMEDIES ARE AVAILABLE?
I. INTRODUCTION
A. What law governs? Common Law of Contracts applies in everything but Sale of Goods.
II. WHAT IS A CONTRACT
A. General Definition - Contract is simply an enforceable promise.
B. Types of Contracts
1. Express (by oral or written words), Implied (conduct) or Constructive (quasi-K)
2. Bilateral Contract is promise for promise exchange and Unilateral Contract is promise for performance exchange.
3. Void (by operation of law), Voidable (at the option of one party), and unenforceable.
C. Is there an Enforceable Contract? In WA to have an enforceable contract, MUST have mutual assent (valid offer and acceptance), consideration and no defenses.
1. Is there Mutual Assent?
2. Is there Consideration?
3. Are there any defenses?
4. What are the remedies for breach?
III. MUTUAL ASSENT - OFFER AND ACCEPTANCE
A. Is there a Valid Offer?
An offer is a present manifestation of intent to form an agreement. If no quantity, no subject
matter, or the offeree is missing, then no valid offer exists. An advertisement is not an offer.
B. Was this offer terminated prior to acceptance?
1. Termination by Act of Parties
a. Termination By Offeror - Revocation? Revocation is expression or statement that is clearly inconsistent with the intent to contract with offeree.
(i) Two types of revocation - Direct - “forget about the deal” and Indirect - reliable 3rd party indicates that offeror is not longer willing to contract with offeree.
(ii) Revocation effective on receipt.
(iii) Offeror can revoke anytime prior to acceptance except: Option contract (paid $ to keep the deal open), Firm Offer, Detrimental Reliance (offer itself contains some promise in it - construction case where general relies on subcontract bid made and general relies on that so irrevocable at that point), Performance Begun (Unilateral) Changes mind after starts walking across bridge - no cannot do this. Beginning performance suspends offeror’s ability to revoke unilateral contract.
b. Termination by Offeree
(i) Rejection or counteroffer - Effective when received or Lapse of time. Tries to accept offer over some time (reasonable time if no time is stated or time as pronounced in the offer. Think Mirror Image Rule
(ii) Termination by Operation of Law
a. Death or insanity of either party (but doesn’t terminate K)
b. Destruction of Subject Matter
c. Supervening illegality - subject matter becomes illegal - State passes law that makes something illegal
(iii) These three things will terminate the offer
C. Has there been a Valid Acceptance of the Offer? Rule: Acceptance is the offeree’s manifestation of agreement in the manner invited and the time required.
1. Who may accept? Offeree or if made to a class, any member of the class.
2. Acceptance must be Unequivocal - known as the Mirror Image Rule - acceptance must mirror the terms of the offer exactly. If any term is different we have rejection and counteroffer. (Unlike U.C.C. 2)
3. Acceptance must be communicated. Silence does not usually mean acceptance unless there is:
a. Benefit retained - neighbors building a fence example
b. Custom makes silent acceptance reasonable. Trapper delivers furs for years and then buyer doesn’t pay that 20th year
4. Acceptance generally effective upon Dispatch - Mailbox Rule
a. Applies to non-instantaneous communications (e-mail, letters)
b. Exceptions - rarely tested
(i) Rejection also sent. Whichever one arrives first trumps. But K formed upon receipt.
(ii) Option Contract. Effective upon receipt - not Dispatch
(iii) Unauthorized means used. Offer says must accept by Fed Ex, but she uses regular mail.
IV. CONSIDERATION
A. Is there consideration to support this contract?
1. Rule: Consideration is a bargained-for exchange of legal value.
a. Bargains - Promise for Promise Exchange or Promise for Performance (Act or forbearance) Exchange
b. No Bargain/Consideration if:
(i) Gift - conditional (go around corner and I’ll give you my coat) or disguised (sell BMW for $1)
(ii) Past Consideration (Employment Cases - $1000 for past 30 years of performance) No new consideration. If new condition... like agree to retire then yes, consideration
(iii) Illusory Promise - “Promise to pay house if I feel like it” Watch for Satisfaction Clauses - Paint a picture to my satisfaction, must be done in good faith, Output/Requirement Contracts, Exclusive agency Contracts*** law implies reasonable efforts.
(iv) Modification - Need separate consideration for modification to be binding.
a. Pre-Existing Legal Duty Rule - already under a duty to complete the job. Cannot get more money unless you agree to do something in addition to original deal.
Ex. A promises to pave B’s driveway in asphalt, B promises to pay $2000. A then asks for more money - $3000. Bound by first agreement. Argue no new consideration provided.
b. Exceptions - 1) like new or Different Consideration
offered. 2) Honest Dispute over Duty (should have paved more - no I should not have 3) Unforeseen circumstances Encountered - Pipes below construction, so more cost.
2. Legal Value Element - Adequacy of consideration v. Nominal Consideration - No inquiry into sufficiency or comparison of the amount of consideration required.
B. If there is no consideration, is there an Alternative Ground to enforce the Contract?
1. Promissory Estoppel or Detrimental Reliance - 4 elements:
a. Promise
b. Promissor should reasonably expect promise to induce action or forbearance
c. Action or forbearance is induced in fact.
d. Justice requires enforcement.
2. Modification under the U.C.C. requires good faith; no consideration
3. Promises to pay legal obligations barred by law
a. New promise enforceable if its in writing or partial performance.
Say bankruptcy discharged but debtor feels like he should pay something so enters into new deal with debtor... that is enforceable
4. Material Benefit Received + Subsequent Promise to Pay. Promise is enforceable even though its really a gift. McGowen case.
5. Restitution Claim - get paid back for conferring benefit on another party.
V. DEFENSES
A. Are there any defenses to enforcement of the Contract? Formation Defect Defenses -
1. Absence of Mutual assent
a. MISTAKE - RULE: Factual error regarding a fundamental and material element of the agreement.
(i) Mutual mistake - barren cow
(ii) Unilateral
(iii) By intermediary - shipping company or carrier. Mistake construed against the party who chose the intermediary
b. MISREPRESENTATION - an innocent or negligent untrue assertion of fact or omission, renders the K voidable if Material and if induced detrimental reliance.
c. FRAUD - a deliberate lie or omission, renders K voidable if party is deceived to her detriment.
d. DURESS – Either physical - gun to the head or Economic - an improper or
wrongful threat, which leaves no reasonable alternative but to agree, that renders
the contract voidable by adversely affected party. Ski rental after hike example
e. UNCONSCIONABILITY renders K voidable. Procedural - absence of
meaningful choice in bargaining process. Substantive - Unreasonably harsh
terms - here can discuss compare terms with relation to cost.
f. LATENT AMBIGUITY - not obvious on face, appears as things unfold
Both parties knew or had reason to know - then No contract Neither party knew - Then no contract One Party Knew - then, yes contract but on innocent parties terms.
2. Absence of Capacity
a. Infancy (18). Contracts by minors are voidable by the minor, unless for necessities, or unless minor ratifies at age of majority. Minor married is exception.
b. Insanity - K is voidable to one who is unable to understand the nature and consequences of the transaction.
c. Intoxication - voluntary Intox is not defense, unless other party knew and took gross advantage of you. Involuntary Intox - treated just like insanity - unable to understand nature and consequences of transaction
B. Other Defenses to Enforcement.
1. Statute of Frauds
a. Scope - not enforceable unless in writing.
-Marriage
-Year (within one) - contracts which cannot possibly be completed in less than one year are covered by the SOF. Employment K for 13 months. Cannot complete term under a year. Trick. Contract for life does not fail under the S of F b/c you could die, thus completing the contract.
-Land
-Executor
-Goods (500+) 2-201 (UCC 2)
-Surety - cosigner on loan. Mom on the hook for your loan. None of these are enforceable unless in writing.
b. Writing Requirements - Need a signed writing with material terms such as: Identity of Parties, Contracts Subject Matter and Terms and conditions of agreement.
c. Exceptions
Specially Manufactured goods
Written Merchants Confirmation
Admissions - if you admit in the pleadings, then you lose your S of F defense
Part Performance - cannot use S of F defense, PP substitutes (takes the place of) the writing.
2. Illegality/Public Policy - Contravenes the statute - cannot share liquor store proceeds. If this happens you have a defense.
VI. THIRD PARTY RIGHT
Know that parties other than initial promisor and promisee may acquire rights and duties at or after formation.
1. Assignment - transfer of contract right - like receiving money or goods.
2. Delegation - transfer of contract duties - paying money or shipping goods.
VII. CONTRACT CONSTRUCTION AND INTERPRETATION
A. Rules of Contract Construction/Interpretation: We derive intent of the parties from their objective manifestations. Not what parties thought in their head.
1. Whole over Parts - make sense of the entire K.
2. Written or Typed over printed.
3. Hierarchy of Evidence of Intention.
Words - (but ambiguous construed against drafter)
Course of Performance - refers to same K and same parties, what they have already done under this K. 19 times late deliver and tolerated it, so cannot complain when late on #20.
Course of Dealing - look to prior contracts
Trade Custom/Usage of Trade - norms, which parties are aware/should be aware of.
B. Parole Evidence Rule - limits what can come in. Rule:
1. Final written expression of parties’ agreement
2. May not be contradicted (can be explained or supplemented)
3. By evidence of prior written Agreement or
4. Contemporaneous Oral Agreement
C. Matters Outside Scope of Parole Evidence
1. Collateral Agreements (different)
2. Consistent additional terms - these can explain the ambiguities.
3. Supplemental course of dealing/trade custom/course of Performance
4. Conditions precedent
5. Consideration - if no consideration then no contract so Parole evidence rule does not apply
6. Defenses - Duress & Unconscionability
D. Context Rule Distinguished - The Berg Rule
In WA extrinsic evidence is admissible to determine intent and the context surrounding the formation of the contract! Once extrinsic evidence reveals whether parties’ agreement is final, complete, and if there is a conflict, then the parol evidence rule is applied as stated above.
VIII. DUTIES OF PERFORMANCE
A. Is the Obligation/Duty of Performance Due?
1. When there are No Conditions to Performance: Rule: duty of performance is due when there are no conditions to performance, or all conditions have been satisfied or excused. Either must perform or risk a remedy for breach.
a. Type of Timing
Precedent - promises to lease space if can sell 2000 memberships first.
Subsequent - cuts off duty of performance - okay to lease until zoning changes
Concurrent - Simultaneous conditions to perform. Real Estate
b. Types of Source
Express - strictly construed. Close is not good enough. Must reach the full 2000 memberships
Implied or Constructive - substantial performance is enough.
2. OR when any unsatisfied Conditions have been excused:
a. Failure to Cooperate
b. Substantial Performance - discharges an implied condition, but not an express condition
c. Waiver or Estoppel
d. Impossibility, Impracticability or Frustration
B. What events Discharge the Duty of Performance?
1. Performance or Tender of Performance (offer to pay or perform by one who is willing or able to do so)
2. Condition Subsequent - cuts off someone’s duty of performance
3. Unforeseen, post-formation changes of circumstances
Supervening illegality
Impossibility/Impracticability - performance becomes unduly burdensome.
Frustration - central purpose of K is undermined.
4. Parties Agreement
Rescission - mutual promises to end K.
Modification - where parties intend to change terms.
Novation - new K that substitutes new obligation/duty for old one.
Accord and Satisfaction/Account Stated - Accord is an agreement to liquidate debt for reduced sum. Satisfaction is payment of that reduced sum.
5. Statute of Limitations - Oral contracts Promissory Estoppel - 3 years, Written Contracts - 6 years. Starts running at time of breach, not time of formation.
IX. BREACH AND REMEDIES
A. What are the available Remedies upon Breach?
1. General Definition - any deviation from promised performance however slight.
2. Repudiation and Retraction Compared: Repudiation (clear indication that breach will result when it is time to perform. Repudiation can be retracted only up until performance is due or until time relayed upon. If Repudiation takes place at time performance is due, the injured party’s duties are discharged and they have claim for damages for total breach.
B. Types and Effects of Breach - If this is a breach, is it material or minor?
1. Material - Injured party deprived of reasonably expected benefits of the bargain! (undermines the substantial benefit of the bargain) Non breaching party can sue for damages and can suspend their performance.
2. Minor (slight deviation from promised performance) Non breacher can only sue for damages. Must still perform.
C. Remedies for Breach
1. Compensatory Damages: In WA, if the court finds breach, contract law attempts to give compensatory damages to the aggrieved party (which compensates the non-breacher in dollars for her economic loss). The standard measure for compensatory damages is the expectation interest. Which provides the amount of money that will put the aggrieved party in the same position that she would have been in had the contract been performed. But there are 3 limitations to expectation interests: Damages must be reasonably certain, foreseeable and unavoidable.
a. Limitations on Expectation Interest
(i) Certainty - if new business, hard to measure damages, cannot be speculative.
(ii) Foreseeability - damages that arise from the nature course of the breach or foreseeable because breacher had special notice of circumstances. Hadley v. Baxendale Be chatty. You should tell them
(iii) Avoidability/mitigation (Duty to mitigate) damages are not collectible if they could have been collected without undue risk burden or humiliation.
b. Argue reliance measure in alternative to Expectation Damages. Fall back measure. Reliance attempts to puts the non-breaching party before the contract was ever entered into.
(i) When expectation measure is uncertain or speculative
(ii) When promissory Estoppel Claim is asserted.
2. No punitive Damages but can get Nominal Damages - usually where very little economic loss.
3. Liquidated or Agreed Damages - favored in WA so long as its not a penalty. Test of penalty is judged at time of formation. Clause is reasonable forecast of just compensation for harm that is hard to measure.
4. Specific Performance available if:
a. Legal remedy is inadequate.
b. Administration of remedy is not unduly burdensome for the court
c. Contract terms are certain and definite. - Breach of Land contract b/c land is unique. Contract for sale of goods if goods are unique and you cannot cover. Contract for services - servitude issue. No specific performance allowed.
5. Restitution - Quasi Contractual Relief - Purpose is to remedy unjust enrichment
Elements:
a. Benefit Conferred,
b. Conferring party had reasonable expectation of compensation,
c. Benefits conferred at express or implied request (lawn mowing example)
d. Unjust enrichment results
Situations where applicable: Claim after rescinding invalid or unenforceable K, Claim under unenforceable promise (no consideration)
Claim in the absence of effort at agreement making.
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