Contract Law General Cheat Sheet PDF

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A PROMISE OR A SET OF PROMISES WHICH ARE ENFORCEABLE UNDER LAW

THE AGREEMENT PROCESS The Agreement Process consists of offer, acceptance and consideration

OFFER INTENT TO CONTRACT •EXPRESSION OF PRESENT INTENT TO ENTER INTO CONTRACT 1. Intent to be legally bound to the contract 2. Objective Intent - believable by the reasonable person standard 3. Must be objective, reasonable manifestation of intent to contract 4. Use reasonable standard unless one party has specific knowledge to which he/she can be held

•ACTUAL KNOWLEDGE OF OFFEREE 1. Communication of offer by Offeror to Offeree 2. Creates power of acceptance in Offeree

a. Generally, offer becomes irrevocable once Offeree begins to perform i. Mere preparation by Offeree is not enough

•BY OFFEREE 1. Rejection a. Express b. Counteroffer i. Creates new offer ii. Offeree becomes new Offeror iii.Original offer remains open when Offeree indicates intent to keep offer “under advisement” c. Offer effective when received d. No revival of offer (Except by Offeror) 2. Exceptions to rejection/counteroffer a. Counter-inquiry - asking Offeror to take less b. Comment on the terms - stating that price is too high c. Request for modification d. Future acceptance i. Subcontractor’s bid/offer is contingent upon contractor’s bid/offer being accepted

•BY OPERATION OF LAW 1. Death or Insanity a. Death must occur between making offer and acceptance 2. Destruction of Subject Matter 3. Supervening Law so as to make contract illegal

OFFERS DISTINGUISHED FROM NON-OFFERS 1. Advertising a. Generally, invitation to receive offers from the public where advertiser has option to accept, negotiate or reject public’s offer to buy b. If specific enough as to price and quantity, could be offered (Real Estate: Description of land and price; Goods: Quantity) 2. Inquiries and Quotes a. Invitation for offer 3. Rewards a. A unilateral contract in that the offeree must perform to receive the reward 4. Auctions a. Invitations for offers to buy which may be rejected by the seller, unless auction is “without reserve” where seller offers to sell for any price 5. Bids a. Bidders are treated as Offerors

DURATION OF OFFER 1. Stated in offer a. Generally, time for acceptance is measured from date offer is received 2. Firm Offer a. If no time limit stated, reasonable time (max. 3 months) applies 3. Non-contractual obligation whose purpose it is to prevent unjust enrichment

TERMINATION OF OFFER •BY OFFEROR (master of the offer) 1. Revocation (Manifestation of intent not to enter into contract) a. Offer may be revoked any time prior to acceptance by Offeree b. Effective when received i. In possession of person to whom addressed ii. In possession of person authorized to receive document iii.Deposited in authorized location c. Express (Communicated) i. Advertisement must be revoked in the same manner in which it was offered or in best available manner d. Conduct (offeree learns from reliable source) i. Reasonable man understands that offer is no longer open ii. Facts must be true subject to reasonable inquiry 2. Unilateral Contract

ACCEPTANCE COMMON LAW 1. Acceptance must mirror terms 2. New terms = Counteroffer 3. Bilateral: Accept in a way required by offer 4. Unilateral - By performance a. Contract arises where Offeror has no way of learning of performance only if Offeree notifies Offeror, Offeror learns of performance within reasonable time, or offer indicates that notice is not necessary b. Notice of performance must be communicated where notice is required c. Reward - recovery available where offer induces completion of performance

MAILBOX RULE 1. Acceptance valid when sent a. If acceptance sent before revocation received b. When out of the possession of the Offeree in a reasonable medium (mail, telegraph, etc.) i. Qualification that offer must be seasonably dispatched and received within a normal timeframe 2. Exceptions a. Offer stipulates acceptance not effective until received b. Option contract (Acceptance received before option expires) 3. Dual responses a. Sequence: rejection sent; acceptance sent; rejection received, acceptance received = NOT contract b. Sequence: rejection sent; acceptance sent; acceptance received, rejection received = YES contract c. Sequence: acceptance sent, rejection sent, rejection received, acceptance received = The 2d Restatement says Yes contract—otherwise, offeree could wait between 1 and 2 and see if things got worse and decide to back out. However, if offeror relies on the rejection, the offeree is estopped from enforcing the contract. The overtaking rejection may be viewed as an offer to rescind or repudiation. d. Sequence: acceptance sent, rejection sent, acceptance received, rejection received = YES contract

i. Buyer has history of retention of goods on prior shipments from Seller c. Offeree takes benefit i. Presumption that compensation is expected 2. Issue: Whether reasonable person would conclude that services are rendered gratuitously

•UCC: TERMS OF ALL CONTRACTS [2-207] 1. Formerly “battle of the forms” 2. Evidenced by conduct of parties, offer and acceptance, or contact which is confirmed by record that contains additional or different terms subject to Sec. 2-202 a. Terms appear in records of both parties b. Terms agreed on by both parties c. Terms supplied under any provision of UCC 3. Different terms a. Knockout Rule i. Different terms cancel each other out, but provisions of Code may be used as gap-fillers, as between merchants b. May be used as additional term, as between merchants c. Must be accepted by Offeror to become part of contract, as to non-merchant 4. Acceptance limited to additional or different terms 5. Acceptance of non-conforming goods is accommodation a. By stating non-conforming goods are accommodation, seller keeps shipment from operating as acceptance 6. Part Performance 7. Contract formed on agreed terms

CONSIDERATION ELEMENTS BARGAINED-FOR EXCHANGE 1. Does not include gift or moral consideration a. Exception: Gratuitous promise may be enforced under promissory estoppel b. Examples: i. “In consideration of the fact that you are attending law school, I promise to pay you $1,000.” Unenforceable since detriment (attending law school) could not induce promise nor did promise of money induce detriment (attending law school), since there was no knowledge of offer or intent to accept when act of attending law school was performed. ii. “If you attend law school, I promise to pay you $1,000.” Enforceable since promise of money induced detriment of attendance at law school and there was knowledge of offer and intent to accept when act of attending law school was performed.

MUST BE LEGAL VALUE 1. Benefit to promisor 2. Detriment to promisee a. Performance of an act not legally obligated to perform b. Forbears from asserting good-faith claim c. Unavailable if pre-existing legal duty d. Modern trend: Modification of contract without further consideration is binding 3. Promise must actually induce detriment a. Promisee must know of Promisor’s offer and must have intent to accept it b. Example: Promisor: If you mow my lawn (detriment to Promisee/benefit to Promisor), I promise to pay you (promise in exchange for act/performance) Promisee: Mows lawn (performs act not legally obligated to perform and performs with knowledge of offer and intent to accept)

•SILENCE IS NOT ACCEPTANCE 1. Exceptions: a. Intent to accept i. Implied-in-Fact Contract (assent manifested by conduct) b. Trade practice

MUTUAL PROMISE 1. Both parties must be bound or neither is bound 2. Alternative promises a. Each alternative must be detrimental

HISTORICAL & MODERN TRENDS 1. Common Law a. Sealed promise b. Requires writing, seal and delivery c. Requirement that informal promise must be made for a consideration in order to be binding 2. UCC a. Good-faith modification b. Merchant’s firm offer c. Requirements Contract: Buyer’s promise to purchase all requirements from seller d. Output Contracts: Seller’s promise to sell entire output to buyer

SUBSTITUTION FOR CONSIDERATION 1. Promissory Estoppel a. Substitute consideration for a gratuitous promise b. Reliance may make a donative promise enforceable c. Elements i. A promise is necessary ii. Promisor should reasonably anticipate that the promise will lead the promisee to act or to forbear from acting iii. Promise is enforceable to extent of reliance to avoid injustice 2. Moral Obligation a. In most instances, a prior moral obligation is not recognized as consideration so as to make the promise enforceable b. Exceptions may come for specific kinds of promises in highly specialized situation

CONDITIONS Conditions have to do with performance, rather than the formation of a contract

TIME OF OCCURRENCE •CONDITION PRECEDENT 1. Occurs before duty of performance 2. Promisee is excused from performance of duty if the condition does not occur 3. Example: Promisee: “In consideration for your promise of goods, I promise to pay you (Promisor) $100 if the truck arrives at the terminal before September 1st.” The Promisee’s duty to pay does not arise unless and until the truck arrives. If the truck does not arrive at the terminal by September 1st, the Promisee is excused from performing his duty to pay $100.

•CONDITION CONCURRENT

DEFINITIONS •OCCURRENCE OR NONOCCURRENCE OF EVENT LIMITS DUTY TO PERFORM, SUCH THAT FAILURE OF CONDITION DISCHARGES LIABILITY OF PROMISOR 1. The Restatement 2d defines it as “an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.”

•EXPRESS CONDITION: Created by agreement of the parties 1. Express Conditions: Written into the contract by the parties 2. Express Conditions implied-in-fact by words of contract 3. All Express Conditions must be literally performed 4. Prevention of condition negates need to perform condition a. Perform as if no condition 5. Generally, must determine if language of promise or language of condition a. Example: Contractor: Promise to pay sub-contractor as money is received. Sub-contractor: Sues for payment upon completion of his/her work. If Language of Condition: Subcontractor may not sue because condition of Contractor’s first getting paid has not been met. If Language of Promise: Subcontractor may sue because language of payment is perceived as being a promise to pay within a reasonable time. b. Promise to pay “when able” i. Majority - language of condition as evidenced by circumstances ii. Minority - language of promise in absence of special circumstances

•CONSTRUCTIVE CONDITION: Imposed by law to do justice 1. Also called implied-in-law 2. Read into contract in interest of fairness 3. Available only in bilateral contracts 4. Substantial performance is sufficient to comply with constructive condition

•DISTINCTION BETWEEN EXPRESS CONSTRUCTIVE CONDITIONS

Interpretation of condition: 1. Express condition to Promisee’s obligation to pay is the truck leaving Los Angeles on or before June 12 a. Promisee is free not to proceed with contract because the express condition must be literally performed b. Promisor is not liable for breach because he/she has not made a promise to cause truck to leave, but because the truck did not leave, the other party is excused from performing 2. If it were a promise to Promisor to cause truck to leave by the 12th: a. Promisee could sue Promisor for breach due to the delay i. Material Breach - promisee is free not to proceed with contract and may sue for total breach or elect to continue and sue for partial breach ii. Immaterial Breach - promisee must perform and can sue for partial breach b. Promisor could sue Promisee for breach due to Promisee’s refusal to take truck because it is one day late i. Promisor’s performance is, thus, a constructive condition precedent to Promisee’s obligation to pay ii. Where Promisor has tendered substantial performance of constructive condition, then Promisor may recover damages less any damages caused to Promisee by late departure

AND

Example: Promisor: “I promise to provide a semi-truck in exchange for your (Promisee’s) promise of payment upon arrival, on the condition that the truck leaves Los Angeles on or before June 12th.” The truck left Los Angeles on June 13th.

1. Occurs at moment of performance 2. Parties to contract exchange performances at the same time 3. Example: Promisor and Promisee agree on sale of car to take place at 3 P.M. at the corner of University and Main. Payment for car and delivery at specific time and place are concurrent conditions.

•CONDITION SUBSEQUENT 1. Occurrence of condition cuts off existing duty 2. Discharges duty of performance that has already arisen 3. Distinction between condition precedent and condition subsequent controls whether plaintiff or defendant has burden of proof a. Generally, plaintiff must prove conditions precedent while defendant must prove conditions subsequent b. Condition precedent by definition but condition subsequent in form are prevalent in insurance policies c. Example: Insurance Policy: Provision: Promise of payment i. if flood occurs (condition precedent) and ii. if policyholder files proof of loss within 30 days of loss (condition precedent) Provision: Insurance company’s obligation to pay is discharged iii.If policyholder fails to sue within 60 days of filing proof of loss (condition subsequent) since failure to sue within 60 days discharges duty to pay that has already arisen. Policyholder: Burden of proof of conditions precedent that flood occurred and that proof of loss was filed within 30 days. Insurance Company: Burden of proof of condition subsequent that notice was not filed within 60 days.

EXCUSE OF CONDITION Generally, condition is excused when it is unjust to insist upon its performance

•PREVENTION OF CONDITION OR FAILURE TO COOPERATE 1. Wrongdoer no longer has benefit of condition 2. Example: Promisor: “If you (Promisee) take care of me in my old age (Constructive Condition Precedent), I promise to leave you money when I die.” Promisee commenced performance. Promisor wrongfully prevented condition from occurring by ordering Promisee to leave.

Promisee proved that he/she was ready, willing and able to perform but for the prevention and recovered value of services performed based on theory of Excuse of Condition.

•WAIVER OR ESTOPPEL 1.Doctrine of Equitable Estoppel a. Party who is guilty of misrepresentation upon which other party justifiably relies to his/her detriment is estopped from denying his/her utterances or acts b. Affirmative defense, which is treated as question of fact 2. Waiver a. Voluntary and intentional relinquishment of a known right b. Condition must be waved after formation of contract and before failure of condition i. Material part of agreement may not be waived ii. Immaterial part of agreement may be waived (a) Waiver may be withdrawn or modified if unfair iii.Condition waived must be for benefit of party waiving it d. Election: After failure of condition i. Express condition: Elect to continue or terminate contract ii. Constructive condition: Elect to continue and sue for partial breach or terminate and sue for total breach iii.Majority: Once an election is made, it cannot be withdrawn iv. Minority: Election may be withdrawn in interest of fairness 3. Waiver of condition, prior to occurrence, where other party detrimentally relies on waiver is binding estoppel 4. Waiver is revocable only if a. Does not involve separate consideration b. Other party does not rely on waiver in changing position c. Involves condition other party must fulfill d. Revocation occurs prior to time when waived condition was to occur and waiving party gives notice

•FORFEITURE 1. An express condition must be strictly performed or can lead to forfeiture—a loss of property or denial of compensation for something done 2. Sometimes, courts will excuse the failure of a condition to prevent forfeiture—if unjust

•DIVISIBILITY 1. Performance of each party divided into two or more parts 2. Generally, building contracts providing for progress payments are considered to be entire agreements taken as a whole, and employment contracts providing for a weekly salary and long-term employment are considered to be divisible

•SUBSTANTIAL PERFORMANCE OF CONSTRUCTIVE CONDITION 1. Complete performance excused if constructive condition substantially performed

•ANTICIPATORY REPUDIATION 1. Promisor indicates beforehand he/she will not perform 2. Applies to bilateral contracts with executory duties on both sides 3. Options a. Treat as total repudiation and sue immediately i. Injured party must show that he/she would have been ready, willing and able to perform but for the repudiation b. Suspend performance and wait to sue until performance date c. Treat as offer to rescind and discharge contract d. Ignore and urge promisor to perform i. Injured party does not lose right to terminate contract and sue for damages unless repudiating party retracts repudiation in time

•PROSPECTIVE UNWILLINGNESS TO PERFORM 1. Good reason to believe that party will not perform 2. Must first ask for assurances 3. If get assurances, party needs to go on with contract under UCC or common law 4. If no assurances: a.Under UCC: may consider an anticipatory repudiation and proceed as such b.Under common law: cannot sue as anticipatory repudiation or suing party is itself in breach. May suspend performance, but must be willing to perform pending other parties’ performance. If they perform, party has reasonable time to perform. If they do not, may proceed with suit for breach.

BREACH Breach of contract describes when party does not perform on his or her contractual duty

NON-PERFORMANCE •DEFINITION OF BREACH 1. Failure to perform contractual duty which has arisen •MINOR (OR IMMATERIAL) BREACH 1. Non-breaching party gains substantial benefit a. Government held to repudiate contracts for oil leases and must return funds where subsequent law substantially delays approval of exploration 2. May not cancel contract 3. May sue for partial breach •MATERIAL BREACH 1. Non-breaching party does not receive substantial benefit 2. Non-breaching party may cancel contract 3. Action for total breach if ready, willing and able to perform if not for breach (recover all damages) 4. May continue contract and sue for partial breach (recover damages caused by breach) • FACTORS IN DETERMINING MATERIAL OR IMMATERIAL BREACH 1. Extent of performance a. The earlier the breach, the more likely it will be deemed to be material b. Delay in performance i. Reasonable delay is not a material breach ii. Failure to adhere to “time is of the essence” generally constitutes material breach 2. Willfulness or negligence a. Willful breach more likely to be material than breach caused by negligence 3. Seriousness 4. Degree of hardship on breaching party

i. Restitution - interest in benefits conferred upon other party ii. Reliance - detriment party may have incurred by change of position iii.Expectation - prospect of gain from the contract 2. Includes money to cover substitute performance a. Non-breaching party under duty to mitigate damages 3. Rule of [Hadley v. Baxendale] a. General damages i. Arising naturally and obviously from breach of contract b. Consequential damages i. Liability for foreseeable losses by reasonable person

•NON-COMPENSATORY 1. Nominal damages a. Symbolic damages (i.e. $1) for purpose of establishing a precedent or a cause of action 2. Punitive damages a. For purpose of punishing fraud, violation of fiduciary duty, acts of bad faith and to deter wrongdoers from similar conduct b. Unusual in contracts, as purpose of damages in contracts is to generally put party in position it would be in if contract was completed, not to punish

•CONSTRUCTION CONTRACTS 1. Buyer’s breach a. During construction: Co...