纽约律考的合同法笔记.doc

BAR/BRI Bar Review New York CourseContracts/Sales/EquityNEW YORK CONTRACTS(INCLUDING ARTICLE 2 SALES & ARTICLE 2A LEASES) 1. APPLICABLE LAW2. CONTRACT FORMATION3. STATUTE OF FRAUDS (needs writing)4. CONTRACT TERMS5. PERFORMANCE6. EXCUSES FOR NON-PERFORMANCE7. REMEDIES8. THIRD-PARTY PROBLEMS (i.e. 3rd party beneficiary; delegation of power; assignment)KEY ISSUE #1: APPLICABLE LAWA.The Multistate Bar Exam tests on 2 kinds of contract law: the common law of contracts (75% of the questions), & Article 2 of the Uniform Commercial Code (UCC) (25% of the questions). How do you know which applies? Article 2 applies to only to a sale of goods: Goods are moveable, personal property. NOT land; NOT services; NOT a loan; etc.The identity of the buyer and seller (corporation, merchant, etc.) is irrelevant. The value of the goods is also irrelevant for the applicability of Article 2 of the UCC.The common law applies to all other contracts.In case of mixed contracts (both goods and non-goods) me need to determine which component is the dominant and apply the body of law governing it.NY distinction: In NY writing serves as substitute for consideration.B.The New York part of the bar exam tests on 3 bodies of law: (1) the common law ofcontracts with New York variations; (2) Article 2 of the UCC for sales of goods; &(3) Article 2A of the UCC for leases of goods (this is not tested in the MBE since most of the states still havent adopted it).NY distinction: In NY Article 2A of the UCC applies to a lease of goods.KEY ISSUE #2: CONTRACT FORMATIONVOCABULARYA.Contract: A legally enforceable agreement. Not every agreement is a contract. First we need to ascertain there is an agreement.An express contract is created by the parties words, either oral OR written.An implied contract is created by the parties conduct.B.Quasi-contract is an equitable remedy that applies whenever the application of contract law yields an unfair or inequitable result. Quasi-contract is not limited by contract rules, but is governed by equitable concepts. It protects against unjust enrichment.This is tested particularly in the NY part.In quasi contract the plaintiff can recover only the reasonable value of the benefit conferred on the other party, and NOT the contract price. Reasonable value is usually lower than the contract price.C.Bilateral contract: An offer that can be accepted in ANY reasonable way.D.Unilateral contract: An offer that can be accepted ONLY by complete performance.All contracts are bilateral UNLESS the offer says it can be accepted only by performance.FIRST STAGE OF AGREEMENT PROCESS: OFFERTo have an agreement we need:(1)An offer.(2)Absence of termination.(3)Acceptance of the offer.A.An offer is a manifestation of an intention to be bound, created by words or conduct.1.Context: Watch out for an advertisement: Its usually not an offer since there is no quantity term, only an invitation to deal.BUT if an ad specifies the quantity and who can accept then there is an offer.2.Content:a.Vague or ambiguous terms, like fair/reasonable/appropriate are not an offer.b.Requirements or output contract: A contract where the quantity is determined by referring the buyers requirements or sellers output.Well see words such as all/only/solely, signifying exclusivity. There is no need to include the word requirements or output expressly.In a requirements contract the buyer cannot take the seller by surprise. Any increase in the buyers requirements has to be in-line with his prior demands.c.Open price term: Common law differs from Article 2 of the UCC: Under the common law in order to transfer interest in land the contract MUST describe the land and state the price, otherwise no contract exists.On the other hand, under Article 2 of the UCC a contract exists even without stating the price term. Then if the parties cannot agree on the price when it is time to perform, a reasonable price at that time will be supplied by the court.Note however, that according to MPQ and NYT the court can supply a price term for other types of agreements besides goods, e.g. services.SECOND STAGE OF AGREEMENT PROCESS: TERMINATION OF OFFEREffect: an offer cannot be accepted if it has been terminated (i.e., it is dead).There are 4 ways to terminate an offer:A.Termination of an Offer by Lapse of Time: An offer expires on the date provided by the contract, and if NO date is specified, then after a reasonable time.B.Termination of an offer by the Offerors Revocation1.Revocation may be Direct OR Indirecta. Direct revocation: a statement by the offeror to the offeree indicating unambiguously that the offeror has changed her mind.Offeror doesnt have to use the word revoke, only make it clear.a. Indirect: conduct by the offeror unambiguously indicating a change of mind that the offeree is aware of. Meaning two requirements: Both conduct and awareness of it by offeree.2.Revocation of an offer is only effective if it is received before acceptance.Note: The mailbox rule applies ONLY to acceptance - neither revocation nor rejection.3.Generally, the offeror can revoke at any time before acceptance. However, there are 4 situations where an offer cannot be revoked:a.Option: a promise to keep the offer open thats paid for (consideration). Hence the offeror bargained away his right to revoke for the duration of the option.NY distinction: In NY a written promise not to revoke is an enforceable option since the writing serves as substitute for consideration.A rejection of the offer during the option period does NOT revoke the option, UNLESS the offeror relied on the rejection. If so the offer is revoked from the date of reliance, and it is irrelevant when the offeree learned of it.b.Detrimental reliance thats reasonable & foreseeable: For example, when making a bid in an auction relying on sub-bids received from sub-contractors, the sub-bids become irrevocable offers since there is reasonable detrimental reliance foreseeable by the sub-contractor; but there isnt a contract; hence bidder can reject but sub-contractor cannot revoke.Preparation to perform can satisfy this exception (e.g. offer to unilateral contract of painting fence, and offeree buys paint).c.Part performance of an offer to enter a unilateral contract: Part performance is not acceptance, but it turns the offer into irrevocable.Mere preparation is not part performance, but it can be reasonable, foreseeable detrimental reliance (see above).d.Firm offer under Article 2 of the UCC: a signed, written promise by a merchant to keep an offer open. Here the writing serves as substitute for consideration (i.e. the rationale is the same as an option).A merchant is a dealer of goods of that kind.A firm offer has a 3 month maximum limit. If the period specified in it is greater than 3 months it will be scaled down. If no time period is specified, the firm offer will be open for a reasonable time not to exceed 3 months.Contrast with option: Needs consideration but there is no time limit.C.Termination of an Offer by the Offerees Rejection1.A counteroffer operates as a rejection, but bargaining does NOT.A question (will you accept less?) is bargaining.2.A conditional acceptance (on the condition that/provided that/so long as/if) operates as a rejection and terminates an offer (no matter the condition).3.An acceptance containing additional or different terms operates as a rejection under the common law, BUT NOT under Article 2 of the UCC.a.Common law: Acceptance MUST mirror offer (Mirror Image Rule).b.Article 2 of the UCC: Acceptance NEED NOT mirror offer (no Mirror Image Rule).The rationale being the purpose to facilitate achieving a contract.Hence, under Article 2 of the UCC, additional terms do not prevent agreement.HOWEVER, the offerees additional terms rarely get into the contract! The offerees additional terms become part of the contract ONLY if (Battle of Forms):(A)Both parties are merchants;(B)The term is NOT a material change. Note that disclaimer of warranty IS a material change and so is addition of arbitration clause; AND(C)The offeror does not object within a reasonable time.D.Termination of an Offer by the Death of either party before acceptance UNLESS the offer was irrevocable due to an option.The termination is automatic and doesnt require the awareness of the other party.THIRD STAGE OF AGREEMENT PROCESS: ACCEPTANCEA.Offer can (but usually does not) control the manner of acceptance. Typically an offer can be accepted by promising, performing or starting performance UNLESS the offer states otherwise.If an offer is for a unilateral contract, then only by complete performance is the offer accepted. If there is no complete performance there is no breach since there is no contract.B.Start of Performance as acceptance: It is acceptance only in a bilateral contract, not a unilateral.C. Improper Performance as Acceptance: Improper acceptance is treated as simultaneous acceptance and breach of contract.One exception under Article 2 of the UCC: Accommodation: If the seller sends instead nonconforming goods but lets the buyer know why he is sending the wrong goods theres no acceptance and therefore no breach of contract. Instead there is a counteroffer which the buyer can either accept or reject.D.Silence as Acceptance: General rule: Silence or inaction is not acceptance. An offeror cannot single handedly bind an offeree by his silence (fear for being bound against ones will).E.When is an acceptance effective?1.Mailbox Rule: acceptance is effective when mailed (whether received or not). Policy: Protects the offeree, who can rely on a contract being formed once he mails an acceptance.Key facts: (1) people are in different places & (2) there are conflicting communications. We need to figure out which communication controls, i.e. which communication became effective first. Remember that revocation becomes effective only when received.2.Exceptions to the Mailbox Rule:a.If the offer provides otherwise. Meaning the mailbox rule is only a default rule.b.Irrevocable offer: The acceptance must be received within the option (or firm offer) period. Rationale: Offeree is protected by option and does not need the mailbox rule.c.Acceptance then rejection: The mailbox rule applies (i.e. acceptance controls), unless the rejection is BOTH received first AND relied upon by the offeror.d.Rejection then acceptance: Mailbox rule does NOT apply, there is a race of sorts - whichever response arrives first is effective.DEFENSES AGAINST FORMATIONA.Defendants Lack of Capacity to Contract:1.Categories: under 18 (minors/infants) (objective test only; dont care what other party thought); intoxicated; mentally incompetent.2.An incapacitated defendant has the right to disaffirm (avoid) the contract.The defense can only be raised by the incapacitated party, not the other party.3.An incapacitated party can impliedly reaffirm a contract by retaining the benefit of the contract without complaint after he gains capacity. Meaning:i.Defendant lacked capacity at the time of the agreement.ii.Defendant later gains capacity.iii.Defendant retained the benefit of the contract without complaint.4.An incapacitated party is liable for necessaries (food, shelter, clothing, or medical care), but only on a quasi-contract basis (meaning the other party can receive only reasonable value).B.Duress: Physical or economic.Economic duress requires:(1)Somebody threatens to breach an existing contract unless he gets a better deal.(2)The other guy makes a new agreement because he desperately needs the first deal.(3)Theres no alternative source of supply.Merely taking advantage of circumstances is not duress.C.Misrepresentation: A material misrepresentation that induce the agreement, even if honest and innocent, is a fatal flaw (there is no need for fraudulent, wrongful or negligent misrepresentation).D.Mistake of Fact in existence at time of agreement:1.Mutual mistake of material existing fact. But a mistake as to market value is not considered material (since the party should appraise the subject of the contract himself) (exception: where both parties subject themselves to outside appraisal which turns out to be mistaken).In building contracts, the courts usually impose the risk for unusual ground conditions on the builder, unless the contract determined expressly otherwise.2.Unilateral mistake of material existing fact: Only if the other party WAS aware or should have been aware of the mistake.E.Lack of Consideration OR a Substitute for ItNY distinction: In NY the existence of a written agreement eliminates the need for consideration, since the writing serves as a substitute for consideration.1.Definition: bargained-for legal detriment/benefit: Meaning the detriment has to be bargained for.For example, in a sale transaction, the promise to buy and the promise to sale are the consideration each party gave.Forbearance can also be a consideration, even if the party would not have done the act out of its own volition (since the forbearance denies the legal right).2.Past consideration is NOT consideration at all, since one cannot bargain for something that had already been done.If the promise is in writing then under NY law (but not MBE) it is enforceable since the writing is substitute for consideration.3.Adequacy (value) of consideration is irrelevant.4.Pre-existing duty rule applies to contract modifications: Consideration is required for modifying a contract. If all a party did was promise to do what it was already legally obligated to do then the modification is unenforceable.Exceptions:i.The modification is in writing: Under NY law ONLY, it is enforceable.ii.The other party promising to pay is a 3rd party (not a party to the contract giving rise to the pre-existing duty).iii.Contract for sale of goods: Under Article 2 of the UCC there is no pre-existing duty rule; we only need good faith. But in case of a modification we may have to comply with SoF.5.Partial payment as consideration for promise to forgive balance of debt:a.Debt is due AND undisputed: Partial payment is NOT consideration.But if the promise is in writing, then under NY Law the consideration requirement is satisfied anyway.b.Debt IS disputed: Partial payment is consideration and the release is enforceable. The rationale is that the law favors settlement of disputed claims.But note: A partial payment not in cash but goods or some other form is probably an accord.6.Promise to pay debt barred by SoL: Is enforceable only if in writing. In this case writing is substitute for consideration both under common law and NY law.7.Promissory estoppel as a substitute for consideration: Requires a promise AND foreseeable, detrimental reliance on the promise.F.Illegality at time of agreement: Distinguish illegal subject matter from illegal purpose: The former makes the agreement completely unenforceable. In the latter only the party with the illegal purpose cannot enforce the contract against the other party if the other party wasnt aware of the illegal purpose (but the other direction is okay).G.Public Policy1.Covenants not to compete: Need to test reasonableness of limitations scope as to two aspects: Time and geography (balancing freedom of contract with restraint of trade).In an employment related covenant not to compete we need IN ADDITION to assess whether there is a reasonable business need for the protection.2.Exculpatory clause: A clause eliminating contract liability. Contract law says you can contract away liability for negligence in appropriate contracts, but you cannot contract away liability for intentional torts and gross negligence.H.Unconscionability (look for oppressive terms or unfair surprise at time of agreement). The key is the time of the agreement and not afterwards. Look for substantive unconscionability (the terms themselves are unfair) and for procedural unconscionability (because of the fine print or legalese).KEY ISSUE #3: STATUTE OF FRAUDSA.Contracts within the Statute of Frauds (means that the Statute of Frauds applies) require writing. Most contracts do NOT require writing. Technically this is a defense against formation of contract.1.Transfer of an interest in real estate of more than one years duration: Note that transfer of title is transfer of interest in real estate forever, hence it is within the SoF, since by implication it is for more than one year.Interest includes ownership, possession, easement, etc.2.Service contract incapable of being fully performed within a year from the date of the agreement (NOT when performance is supposed to begin): We must ignore what actually happened and look at what might have happened under the terms of the contract.Whenever giving a specific task there is no SoF problem, since theoretically any task can be performed in one year (e.g. by hiring more men, using heavy machinery, etc.).Life time contracts do NOT fall within the SoF since the party might die within the year.NY distinction: In NY life time contracts are considered to be within the SoF, since the presumption is the opposite - the party might live for more than one year.3.Sale of goods for $500 or more: The only dollar amount requirement in Article 2 of the UCC is for