April 1, 2012

Contracts Law Bar Exam Outline for Law Students

Six Possible Issues:
A.    Did the parties form an agreement?
1.      Offer?
2.      Acceptance?
3.      Ambiguity of language?
B.     If the parties form an agreement, is their agreement a contract?
1.      Valuable consideration bargained for legal detriment?  Promissory Estoppel?
2.      Absence of defenses precluding formation?
C.     Do the terms of that contract or subsequent actions of the parties confer any rights or impose duties upon non-traders?
1.      Third-party beneficiaries?
2.      Assignees or Rights and Delegates of Duties?
D.    Have the performance obligations created by the K matured?
1.      Fix time and order or performance - law of conditions:
a.       Express
b.      Implied-in-fact
c.       Implied-at-law (constructive conditions)
2.      Conditions Precedent
3.      Conditions Concurrent
4.      Conditions Subsequent
E.     If the K obligations have matured, has performance been excused?
1.      Obligations are objectively impossible
2.      Commercially impracticable
3.      Frustration of purpose (circumstances of other party has no utility)
F.      If performance has not been excused and not tender there is a breach and hence there is the need to discuss remedies.
1.      Present Material
2.      Anticipatory Repudiation
3.      Voluntary Disablement
4.      Remedies

Sales of Goods - Article 2
A.    UCC Sales of Goods provision does not apply to land, personal services.
B.     Only applies where both parties are merchants (professionals).

I. The Agreement Process
A.    Did the parties form an agreement?
1.      Is there an offer?

2.      Was acceptance made at time offer still open?
3.      Was there effective acceptance?
B.     Objective Theory of K Formation - court looks at actions of parties and holds them to what a reasonable person would do.
C.     Offer
1.      Objective manifestation of a present intention to form a present contract which is communicated to the other party.
2.      Three elements required:
a.       Intent (to form a present K)
(1)  State of Mind - could reasonable individual in the circumstances stated (i.e. hysterical, duress) manifest the present intent to form a K?
(2)  Preliminary Negotiations - could reasonable individual under the circumstances infer that a present intent to form a K was offered?  If party was specific to essential terms then the preliminary negotiations were probably sufficient.
b.      Content
(1)  essential terms include:
(a)  Parties to the Transaction
(b)  Subject Matter
(c)  Time
(d) Price
(2)  If total silence to an essential term then court assumes at CL that the agreement was based on reasonable terms based on:
(a)  Prior History
(b)  Customs of the Marketplace
(3)  If ambiguous CL held that no terms could be inferred.
(4)  UCC permits merchants to agree to settle essential terms at future date.
a.       Communication
(1)  No offer if intended offeree stumbles across contract before offeror communicates the offer.
(2)  Offeror has absolute power to determine when offer is accepted.
(3)  If no expiration date offer is open for a reasonable time.  If possible discuss how the reasonable time might be set by the facts given.
(4)  Revocation by Operation of Law
(a)  Destruction of the subject of the offer.
(b)  Death of offeror or offeree.
(c)  If government declares bargain illegal.
(5)  Rejection terminates the offer.
(6)  Revocation by Offeror
(a)  Offeror can revoke at any time even if they say they’ll hold it open.  Except where:
i.        Purchase of an Option (to hold K open)
ii.      Estoppel (changing position on foreseeable detrimental reliance)

iii.    Firm-Offer (UCC creations)
*requires offer is in writing, goods are the subject matter, and the offeror is a merchant
D.    Acceptance
1.      Must amount to a present, unconditional, unequivocal assent to each and every term of the offer.
2.      Mailbox Rule - K forms upon dispatch of the acceptance into channel of communication (communicated by any reasonable mode of communication).
a.       If appropriate form of communication not used then K formed upon receipt.
3.      Any tampering of the terms operates as a rejection.
4.      Effective acceptance is a mirror image of the offer.
5.      UCC allows acceptance even if there is no mirror image.  There will simply exist a question of terms.
6.      Acceptance with New Terms
a.       Consistent Terms - a K is formed and terms include those modified by the offerree unless the offeror promptly rejects the new terms.
b.      Inconsistent Terms - do no enter the K unless offeror expressly assents to the new inconsistent terms.
(1)  These are terms which:
(a)  materially shift the economic benefit of the K
(b)  materially reallocate risk
(c)  impair a remedy
7.      Acceptance in Unilateral Mode - performing specific act works as the acceptance.
a.       Protection of offeree in this situation:
(1)  Once offerree begins substantial performance he cuts of power or revocation as to give him reasonable opportunity to complete the K.
E.     Ambiguity
1.      Latent - if term is subject to more than one meaning and it is reasonable that the parties each attach a different meaning to that term there is no K.  If no one is guilty of fault in clarifying the term then K is void.  If one party
2.      Patent - if term obviously susceptible to more than one meaning and parties to K do not clarify there is no K.
3.      However, if one party knows the other party is confused then the ambiguous language is decided in favor of the one who is confused.
4.      Problem is that words do not convey the actual intentions of the parties.
F.      Mistakes
1.      Mutual Mistakes - both parties share mistakes.
a.       Both buyer and seller can use the mistake as a refusal to perform.
b.      Key will be the gravity of the mistake (its importance to the bargain).
c.       If mistake goes to heart of transaction / essence then recession.
d.      If mistake does not go to essence then no recession.
2.      Unilateral Mistakes - only one party is mistaken.

a.       Mechanical Miscalculations - a bargain not intended to be made upon the given terms (a miscalculation).  This may provide grounds to relieve mistaken party.  However, if the non-mistaken party has formed a commercially reasonable expectation upon the terms to which the blundering party apparently considered, the blundering party is bound.
b.      Errors of Business Judgment - courts will not provide relief for errors in business judgments.
c.       Mistakes of Third-Party Intermediaries - same as mechanical miscalculations.  It turns upon whether the recipient of the message has developed a reasonable expectation.
G.    Parol Evidence Rule
1.      Used when agreement reduced to written expression, there is litigation about the agreement and one party seeks to bring in information not within the four corners of the agreement.
2.      Ask:
a.       Is there an integrated writing? (Both parties intend written instrument to be full and final expression of their agreement - if not then no PER).
b.      Is the evidence being sought to brought in parol evidence? (Parol evidence is any evidence of promise, representation, or understanding between the parties which was arrived at prior to or contemporaneous with the formation of the agreement).
c.       What is the impact of the PER? (It cannot contradict nor add terms to the integrated agreement).
d.      Three exceptions to PER:
(1)  Proof of Fraud
(2)  Theory of Partial integration
(a)  conservative test - judge allows evidence only if agreement looks to her incomplete on its face.
(b)  liberal test - if party offering can supply judge with a credible explanation as to why term was left outside the agreement, judge can admit it even if agreement looks compete on its face.
(3)  Collateral Agreement - infers that on day agreement was entered into there was a second agreement as well.  Three step analysis:
(a)  judge determines alleged second agreement is of lesser importance than the integrated writing.
(b)  no term of alleged collateral agreement can contradict term of integrated writing
(c)  must be some daylight between the two agreements so court could see that parties would rationally treat them separately
3.      All these determinations are made by the trial judge.

II.  Qualities of a Contractual Relationship
A.    Three Indispensable Parties
1.      Offeror

2.      Offeree
3.      The Court
B.     Consideration - bargained for legal detriment on both sides and lack of defenses to such consideration
C.     Approach
1.      Do you see a bargain?
2.      Does each exchange involve  bargained for legal detriment for each participant?
3.      If one party has no legal detriment, is there any substitute for valuable consideration?
4.      Are there any defenses which preclude the formation of a K?
D.    Valuable Consideration - may be found in the bargained for promise to do any act or the doing of any act which but for this bargain the promisor was not legally obligated to perform.  It can also be found in the forebearance of some action.
1.      Past Consideration is not valuable.
2.      Moral Consideration is not valuable.
E.     Legal Detriment - is the change in legal rights or liabilities of what a party had before agreeing to perform the promise.
1.      Even if legal detriment is created with respect to one aspect of a K, that is sufficient to create a legal detriment.
2.      Exceptions where court will also look to fairness:
a.   Fiduciary Relationship
b.      Confidential Relationship
F.      Defenses to Consideration:
1.      Want of Consideration - defense to formation of K if it can be established there is no consideration.  Showing that the other party incurred no legal detriment.
a.       Also called want of mutual obligation.
b.      Illusory Promise - a promise which does not change the legal obligations of the promisor. 
(1)  Similar to:
(a)  never promising anything in return OR
(b)  pre-existing duty; four ways to get around it:
i.        Alteration of duties will overcome want of consideration.
ii.      Equity of Recession - if one ran into unforeseen problems they could ask for more money to finish it.
iii.    Accord and Satisfaction - If good faith dispute then can enter into an accord which satisfies the obligation owed.
iv.    Good Faith Modification - If B in good faith tells A she cannot perform unless A pays $5000 more, A is not obligated to make payment nor promise.  But if A pays money the promise is binding.  The UCC abolishes the need for any new element supporting the concession.
(2)  Under UCC - full performance of the promise will fix the illusory promise problem.  Basically subsequent performance can cure the problem.

(2)  There is a covenant of good faith which also binds merchants to bring about the commercial viability of the contractual obligations.
2.      Failure of Consideration -defense to enforcement of one’s K duties (personal defense).    Assumes one party is already in material breach so you don’t have to perform your side.
3.      Inadequacy - no defense at all.  Exception is subservient party in fiduciary or confidential relationship.
G.    Promissory Estoppel - If P brings cause of action on theory of promissory estoppel it is not a K claim.  It is an alternative to a contractual analysis and is a civil claim.
1.      The P is alleging that he is unjustly impoverished.
2.      It protects the reliance interest of the aggrieved party.
3.      Elements:
a.       Promise made by one party to another
(1)  The promise had the foreseeable quality of inducing reliance on the part of the individual who made the promise.
(2)  Promise must have occasioned reliance.
b.      Detrimental reliance
c.       Breach of the promise
d.      As result of breach and alliance the promisor is worse off.
4.      The reliance must be reasonably foreseeable; if not then no recovery.
5.      Since this is not a K action the statute of frauds does not apply.
6.      If in promise to convey real estate P enters property and makes permanent changes, court have used promissory estoppel as grounds to order specific performance to quiet title.

III. Defenses to Formation
A.    Types of Defense
1.      Real Defenses - these preclude formation of the K.  They are more powerful.
2.      Personal Defenses - these admit the K was formed but will void the duties of the party.  Must be asserted in a timely manner.
B.     Categories of Defense
1.      Form
a.       Statute of Frauds - if subject matter falls under statute of fraud and there is no written memorandum of forms, then there can be no remedy UNLESS the result of allowing the D to invoke the statute of frauds would be a gross injustice.  The court will then decide the issue in equity.
(1)  “M” - Marriage
(2)  “Y”  - One Year
(3)  “L”  - Land / Real Estate
(4)  “E”  - Executor
(2)  “G”  - Sales of Goods for $500 or more.  Exceptions include:
(a)  oral contract enforceable as long as goods tendered and excepted

(b)  if both merchants a written confirmation of the bargain from one to the other will suffice
(c)  after beginning the production of special goods
2.      Capacity
a.       Minor - under CL the K obligations of minors are voidable.  However, their promises amount to valuable consideration.  Thus, if the minor does not assert the defense he waives it.
(1)  If the minor consumed the items as necessary, the P may recover the value of the items in quasi-K.
b.      Mental Capacity - generally void, unless P had reason to know of D’s incapacity and dealt with him anyway.
3.      Content of the Bargain (i.e. social objection to the bargain)
a.       Illegality - if the subject matter became illegal at time when the offer was outstanding, the offer will be revoked.
(1)  Nature of the Illegality
(a)  Malum in Se - if participation is intrinsically evil than the attempted bargain is void.
(b)  Malum Prohibitum - no intrinsically wrong but only wrong because society has prohibited it.  The party who rendered valuable services may recover the market value of those services in quasi-K if they were unaware of the existence of the statute which make the bargain illegal.
i.        In pari delicto - if both parties aware of the illegal then no recovery for either.
ii.      Protected class - if person in protected class engages in the prohibited activity then he may recover the market value of services rendered.
b.      Unconscionability - by terms of the bargain one party seeks to benefit himself contrary to public policy.
(1)  Blue pencil - court may elect to “erase” the unconscionable terms from the K.
4.      Tactics of the Traders (i.e. fraud, duress, overreaching)
a.       Fraud -
(1)  Fraud in the Factum (Real Fraud) - any action which prevents a party from realizing some contract is in contemplation.  Here, there is no K formed.
(2)  Fraud in the Inducement - victim is aware the K is in contemplation but assent is achieved through fraud.  This is a personal defense.  It will void the K.
(3)  Fraud in the Execution - consent is validly obtained but the writing embodying the oral agreement suffers from selective or inventive memory.  This is also voidable.
b.      Duress - it always renders the consent of the victim voidable.  Includes the threat of physical force.
(1)  Economic Duress - requires:
(a)  one party has desperate need for good, and
(b)  other party has actively exacerbated the need or created it.
c.       Procedural Unconscionability - one who uses the fine print of Ks in their documents to create an advantage.

IV. Rights and Duties of Non-Traders
A.    Non-trader - any person in the fact pattern who was neither the offeror nor offeree.   If their rights are defined by the terms of the original K, they are a potential third-party beneficiary.   Otherwise they are likely the assignee (nontrader) who assumes the obligations owed to the original party.
B.     Intended Third-Party Beneficiary
1.      At the formation stage this individual has no function in forming the agreement.
2.      If the nontrader is an intended third-party beneficiary, that nontrader has the primary responsibility for correcting any breach of performance obligations running to him.
3.      Approach:           
a.       Is the third party an intended beneficiary?
(1)  direct undertaking of the promisor, with
(2)  the intention to benefit (the third party) in the mind of the promissee

b.      If yes, has his rights vested?
(1)  CL view:
(a)  creditor beneficiary - could vest rights only when having learned of the K made for her benefit and she changed position in detrimental reliance.
(b)  donee beneficiary - rights vested as soon as K was formed.
(2)  Modern view:
(a)  when having learned of K she changes position in detrimental reliance
(b)  she asserts a claim against the promisor for any refusal
(c)  she expressly consents to receive the performance of the promissor when that consent has ben requested by either trader and not volunteered.

c.       If you found an intended beneficiary with vested rights, the primary cause of action to remedy any breach lies with the intended beneficiary.  If there is a breach, what defenses may promisor raise?
(1)  Defenses:
(a)  any real defense will mean there was no K
(b)any personal defense in K would make the K voidable by promisor                                      (2)  rights of third party beneficiary are no greater than that of the promisor
(a)  counter-claim and set-off - intended beneficiary rights are affected by the counter-claim but are not affected by set-offs the promisor has against the promisee.  Key is that a counterclaim arises from the K but a set-off does not.

d.      What rights, if any, accrue to the other party to the K who bargained for the arrangement and supplied the valuable consideration?
(1)  If the third party is successful then the promissee has no cause of action.

(2)  If the third party doesn’t assert or the third party’s action fails for something other than on the merits, then the promisee can pursue their own action.

C.     Assignment of K Rights
1.      Three rules:
a.       Law favors freedom of assignment.
b.      If assignment of rights is proper, it can be accomplished without authorization of the other party.
c.       Assignments are not appropriate when they vary or prejudice the right of performance the original trader was entitled to.
2.      Approach:
a.       Is there a present assignment?  If no present assignment then don’t do anything else.  This analysis is over.
(1)  Present Assignment - requires objective manifestation of the intent of A to transfer present rights to X right here and right now (not in the future) and a clear identification of what is being transferred.  Can be any acts or words sufficient to describe what is being transferred.  “A” is required to divest himself of all rights, titles, and interests.
(2)  An equity permits future assignments provided there is an established economic relationship between A and B which will create something for A to assign to X.
b.      If present, is it operative?
(1)  B need not agree to the assignment, but in order for the assignment to be operative it must be recognized by B.
(2)  CL restrictions applicable to all assignments:
(a)  B can ignore assignment if consequence of assignment adds to or varies the duties she assigned at the time the K was entered into.  (i.e. the K calls for personal service).
(b)  B need not perform if orginal K had a non-assignee clause.
(c)  B cannot perform if there is a bona fide purchaser for value.
c.       If present operative assignment, is it revocable?
(1)  X faces two dangers:
(a)  A changes his mind.
i.        Has a right to change mind if oral and gratuitous, otherwise cannot change mind.
(b)  A makes a second assignment of the same subject matter to another assignee.
i.        Gratuitous assignee holding a revocable assignment is eliminated from the race.
ii.      Superior equity will win (i.e. writing over oral).
iii.    American Rule - assignee first in time is first in right.
iv.    California Rule - regards the subsequent assignees as being in a race.  The first assignee to give notice to the obligor will win.
v.      Subsequent assignees can sue the assignor for conversion.
d.      Legal rights becomes exclusive right of assignee if operative and irrevocable.

(1)  assignee “stands in shoes of the assignor” and has same rights (but not greater than) the obligor
(2)  assignee is thus vulnerable to any counter-claims or set-offs

D.    Delegation of Contract Duties
1.      Most duties are delegable but not personal services.
2.      The consequences of an effective delegation require the obligee to cooperate in the delegate’s attempt to discharge the duties of the obligor.
3.      In event the delegate fails to perform, the obligor will be in material breach of what will be known as K #2.
a.       If there had been a K of delegation between the obligor and the delegate the obligee is an intended third party beneficiary of that K and may commence an action against the delegate in that capacity.

V.    Conditions
A.    Have performance obligations created by the contract matured?
B.     Every condition modifies a promise - there are no such things as conditions in the abstract.
C.     Does this two ways:
1.      Condition Precedent
2.      Condition Subsequent
D.    Approach:
1.      Does it create or condition liability (distinguish covenants which create liability and conditions which modify covenants)?
2.      What is the impact of the condition on the covenant / promise?
3.      Has the condition been satisfied?
4.      If you have found condition precedent or concurrent which has not been satisfied, then ask whether the condition has been excused?
E.     Conditions v. Covenants
1.      Conditions serve two utilities:
a.       At formation stage the conditions provide traders with tool to allocate the risk.
b.      Provide courts with ability to assign primary fault or responsibility for a contract breach and assign monetary damages.
2.      Covenants
a.       Determines what needs to be performed to carry out K obligations (a promise).
3.      Covenants involve language creating an obligation whereas a condition has language which permits one to extinguish performance.
4.      The second mention of a promise will usually indicate existence of a condition.
5.      Doubtful or ambiguous language is that of a covenant, it is NEVER regarded as the language of a condition.
F.      Impact of Conditions
1.      Conditions Precedent

a.       These are any conditions which must occur before there is an absolute duty to perform a promise.
b.      Ask if the language says “I am not liable on this promise until [contingency] . . .”
c.       Conditions of Satisfaction (very common)
(1)  if level of performance would gratify a reasonable person that is sufficient to satisfy the condition
(2)  performance of taste and aesthetics are personal are not held to reasonable person standard
(a)  judgment must be done in good faith
2.      Condition Concurrent
a.       These happen if mutual tender of obligations exist where both parties are required to manifest intention to perform at the same time.
b.      They call for simultaneous performance.
3.      Condition Subsequent
a.       It will discharge or distinguish what were otherwise matured duties.
b.      There is frequently a civil procedure cross-over in these situations b/c there is not a complaint upon which relief can be granted until the obligations of the D have matured.
c.       Conditions subsequent are treated as affirmative defenses which will extinguish liabilities which have already existed.
4.      Express Conditions - these are created by the language of the bargain.
5.      Implied Conditions - these arise by necessary inference from what traders reasonably assumed at the time of the bargain.
a.       Function is to protect expectations.
b.      These are derived from reasonable assumptions.
6.      Conditions Implied at Law / Constructive Conditions - found if time and order not expressed.
a.       Three situations:
(1)  If performances of both parties capable at same time and place then breach occurs when one party tenders and the other doesn’t.
(2)  If performance of one party takes time and the other party’s performance can occur in one act, then the party whose performance takes time must act first.
(3)  If the terms of the K set a date certain for performance of one of the parties and not the other, the party who has the fixed date will be treated as having a condition precedent.
b.      Substantial performance on party who is to go first is sufficient to shift responsibility for breach to the other party.
G.    Excusing Conditions
1.      Doctrine of Prevention - any active intermeddling by party advantaged by the condition to interfere with the unfolding of events so as to frustrate satisfaction of the condition.
2.      Wavier - a voluntary relinquishment of a known and appreciated right.  Once a K provision is waived it is gone forever.  Waivers can be express or implied

3.      Estoppel - Person who has advantage of condition acts upon reasonable reliance that they do not need the condition satisfied and the other party does not satisfy the condition.  (Hiding behind the condition).  As long as confusion clarified before the detrimental reliance then no estoppel.
4.      Threat of Breach
a.      Three doctrines:
(1)  Anticipatory Repudiation - prior to satisfaction of conditions precedent or concurrent promisor communicates a definite renunciation of any intention to be bound by the terms of the exchange.  Four alternatives for the repudiated party:
(a)  treat K as repudiated and sue immediately
(b)  suspend his own performance
(c)  offer to rescind and treat the K as discharged
(d) ignore and urge performance
(2)  Voluntary Disablement - any voluntary action taken by the promisor subsequent to formation which places the power of performing the conditional duty beyond her powers.
(3)  Failure to Give Adequate Assurances of Performance - the insecure party may treat the failure of the other party to provide adequate assurance within a reasonable time as a present breach of the K by repudiation.  This breach would discharge any executory covenants of the aggrieved party on a theory of failure of consideration and excuse all conditions which had protected the non-responsive trader.

VI. Doctrine of Excusable Non-Performance
A.    Impossibility - if subsequent to the formation of the bargain, physical or legal obstacles arise to render the performance impossible, the promisor is excused from performance by law.  There must be no person on the face of the earth who could carry out the obligations (Objective impossibility).
B.     Impractability - cost is so much more than originally bargained that it would be unfair to hold the person to the promise.  The problem cannot be foreseeable at the time of the bargain.
C.     Frustration - subsequent to formation of bargain, the performance of one party becomes of no value or utility to the other party.

VII.     Contract Breach and Damages
A.    Approach:
1.      What is the impact of breach upon affirmative duty of aggrieved party?
2.      What are available remedies?
B.     Breach
1.      Material - gone to the essence of the bargain.  The K is dead and an appropriate remedy must be found.  It creates an immediate cause of action.
a.       Abandon K and mitigate damages at CL.

b.      Under UCC the buyer must inspect goods for conformity and can either:
(1)  Perfect Tender Rule allows buyer to reject for any reason
(a)  accept and get difference in value
(b)  waive and accept with knowledge of nonconformity
(2)  Self-Help - duty to preserve the goods being rejected.
2.      Minor - impaired the bargain in only some insignificant sense.  Only the aggrieved party must go ahead and perform there duties while still looking to the damage remedies at law. 
3.      The problem is that if one mistakes the breach for material when it is really minor and then abandons performance prematurely.
C.    Remedies
1.   Expectation Interest - put party in place they would have been had K been performed.
a.       P must prove damages alleged were consequential upon the breach.
b.      P can recover only for those damages which were foreseeable at formation of bargain.
(1)  Generally foreseeable - D has only knowledge of terms of K.  This is a reasonable person standard.
(2)  Specially foreseeable - where P communicates to D other things which the performance of D will depend on