Cali Lesson Notes

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    Offer is the name given to a promise that is conditional on some action bythe promisee if the legal effect of the promisees taking that action is tomake the promise enforceable.

    The First ElementIn determining whether an offer has been made you use the objectivestandard:

    (1) Would a reasonable person in the offerees shoes assume that thepower of acceptance had been created in him? This means thatif the offeree knows or has a reason to know that the offerorhasnt made an offer, then there is no offer.

    To determine whether an expression is an offer it must be a manifestation of present intent. Because of the objective nature of this objective test of

    intent, modern cases require that one look not only at the words use by theofferor, but also at all of the surrounding circumstances to determinewhether a reasonable person in the same or similar circumstances of theofferee would understand that the offeror intended to be bound. Offers canbe: oral, written, or implied by conduct.

    The Second ElementDefiniteness ~ Even though the parties may intend to form a contract, if terms of their purported agreement are not reasonably certain, no contractwill result. If the terms purposed in an offer are not reasonably certain, anacceptance of the offer cannot form a contract. As with other areas of

    contract formation, it is a question of intent. Thus, all of the circumstancessurrounding the transaction must be examined.

    Indefiniteness can be divided into three general categories:1. The parties purport to agree on a material tem but leave it too

    indefinite or vague.2. The purported agreement is silent on a material term.3. The parties agree to later agree on a material term

    In order for an offer to be definite enough, there must be a reasonablycertain basis for a remedy in the event of a breach. More specifically, a courtmust have a basic guide available to calculate the amount of damagesawardable for breach or to award specific performance of the contract.

    U.C.C. 2-204~ If the parties had otherwise exhibited an intention to form anagreement, Article 2 uses the gap fillers to provide terms where the partiesfail to make an agreement on some terms of the contract: price, place,payment.

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    The Third Element The third element to determine whether an expression in fact is an offer iswhether an expression in fact is an offer is whether it was communicated tothe offeree. In fact, failure of the offeror to communicate the offer to the

    offeree may indicate that no offer exists in the circumstances. Furthermore,an offer only creates the power of acceptance in the offeree and not in otherthird parties.

    An offer must be communicated to the offeree in order to be an offer.

    Acceptance

    Acceptance is the offerees manifestation of assent to the specific terms of the offer stated by the offeror, made in a manner invited or required by theofferor, and the occurring while the offer is still open.

    Mutual assent to be bound to a contract is an essential element to contractformation. Parties may achieve mutual assent through a bargaining processthat involves an offer and an acceptance. So, identifying the offer andacceptance can be the method by which mutual assent is established.

    Manifestation of mutual assent ordinarily takes place:(1)by one party (the offeror) making an offer to another party (the

    offeree)(2)which the offeree accepts

    Because the offeror is the master of the offer, the offer may be restricted toa form of acceptance dictated in the offer. Thus, the form of manifestation of assent by the offeree may be restricted by the offer.

    In determining whether an acceptance has been made you use the objectivestandard:

    (1) Would a reasonable person in the offerors shoes assume there hasbeen acceptance? Even when the offeree didnt in fact knowof the offer or intend to accept it.

    Acceptance Generally:An acceptance is merely the offerees manifestation of assent to the terms of the offer stated by the offeree.

    An effective acceptance requires three things:(1)A manifestation of assent by the offeree to the terms of offer;(2)Must be made in the manner invited or required by the offer; &

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    (3)Must occur while the offer is still open.

    First Element: Manifestation of Assent Three criteria:

    (1)There must be a commitment(2)The commitment must not be conditional(3)The commitment must be on the terms proposed without variation

    The commitment must not be conditional:Since an acceptance is the ultimate step in making a contract, thecommitment cannot be conditional on some final step to be taken by theofferor.

    Commitment must be on the terms proposed without variation:

    Mirror Image Rule The expression of commitment manifesting assent to the bargain offeredmust be on terms proposed by the offeror without any variation.

    Second Element: Manner of AcceptanceAn offer is accepted when the offeree promises to perform the terms of theoffer. Since the offeror is the master of the offer, he can specify that theoffer can be accepted by performance (Unilateral Contract) or bypromising to perform (Bilateral Contract). When an offer does not specifythe manner of acceptance the offeree can accept in any manner reasonableunder the circumstances.

    Who can accept?An offer can only be accepted by the person or persons to whom it isaddressed b/c the power of acceptance has been bestowed upon theofferee by the offeror.

    AdvertisementsSometimes an offer may be directed to a group of persons, perhaps even toan unlimited number of persons, such as the public. Who can accept isdetermined by the terms of the offer.

    RewardsIn addition to being a person who can accept an offer, an effectiveacceptance must be also be made by a person having knowledge of an offer.

    Silence as acceptance

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    The general rule is that acceptance is not made by the offeree remainingsilent in response to the offer. An offeror cannot foist a contract on anofferee by forcing the offeree act to reject the offer. The receipt of anunsolicited offer does not create an obligation on the offeree to respond or

    face acceptance by silence.

    However, exceptional circumstances do exist and conduct of the offeree mayamount to acceptance in some cases:

    (1)Taking the benefit of the offer;(2)Prior conduct of the offeree giving the offeror reason to believe that

    silence would be acceptance;(3)Exercise of dominion over the goods; or(4)Where the offer states that the offer may be accepted by silence

    and the offeree remains silent with the intention of accepting

    Prior Conduct The prior conduct of the offeree that gives the offeror reason to believe thatsilence is an acceptable method of acceptance may be sufficient to bind theofferee who is silent.

    Exercise of DominionAn offeree who receives goods and exercises dominion over the goods willbe deemed to have accepted the goods even though the offeree does notintend to accept.

    Offerees intention that silence is acceptanceSometimes an offer may state that an offerees silence may constituteacceptance, but that offeree must intend to accept by silence in order to bebound. Also, when the offeree allows the offeror to confer a benefit on theofferee knowing that the offeror expects payment thereof.

    Rejection and Counter-Offer:A rejection of the offer terminates that power of acceptance. A counter-offerproposes an offer on the same subject matter and also rejects the originaloffer. In both of these cases, the offer is terminated and the offeree can nolonger accept it, no contract.

    RejectionA rejection is simply a manifestation of the offerees intention not to acceptthe offer. Such a manifestation typically results in the termination of thepower of acceptance unless the offeree also manifests an intention to takethe offer under advisement or the offeror has manifested an intention to

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    keep the offer open. The rationale underlying the rule is that an offeror whoreceives a rejection is likely to rely on it.

    Inquires or requests for a better offer do not constitute rejection.

    Counter-OffersA counter-offer is a new offer made by the offeree to the offeror on the samesubject matter as the original offer. It is a substituted bargain proposedinstead of the one offered originally. When the offeree makes a counter-offer, it typically will terminate the power of acceptance under the originaloffer, unless a contrary intention is manifested.

    Contract Formation I

    The Bargaining Process: There are essentially two requirements: (1) Assent and (2) Definiteness.

    Mutual assent to be bound:An essential element of contract formation. Parties may achieve mutual

    assent through a bargaining process, which involves an offer and anacceptance. So, identifying the offer and acceptance can be the method bywhich mutual assent is established. Once you determine that an offer hasbeen made, next determine if the offer is revocable. An offer can beirrevocable by formation of an option contract, by beginning to performunder an offer that looks to acceptance by performance only, by detrimentalreliance, by statute, including a firm offer under U.C.C. 2-205, and by awriting signed by the offeror which recites a purported consideration andproposes a fair exchange.

    Objective v. Subjective:In order for a contract to be formed there must be a meeting of the minds.Objective Theory looks to what a reasonable person would believe had theybeen in the offerees same or similar position. Subjective intent is what theofferor meant as determined by the surrounding circumstances.

    Generally, advertisements, catalogs, and trade circulars do not manifest anintent to constitute an offer.

    Termination of the Power of Acceptance:Revocation:

    There are three ways in which the power of acceptance revocation occurs:(1)Revocation by the offeror

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    (2)Lapse of time(3)Death or incapacity of the offeror

    A revocation occurs when the offeree:

    (1) Receives from the offeror(2)A manifestation of intent not to enter into the proposed contract

    A written revocation occurs when received:(1)when the writing comes into the possession of the offeree or(2)when some person authorized by the offeree to do so receives it, or(3)when it is deposited in some place which the offeree has authorized

    as the place for communications to be deposited for him or her.

    A revocation occurs when:(1) The offeror takes definite action inconsistent with an intention to

    enter into a proposed transaction(1)The offeree acquires reliable information to that effect

    Lapse:Governed by the reasonable person standard. Where parties bargain face toface or over the telephone, the time for acceptance does not ordinarilyextend beyond the end of the conversation.

    Irrevocable Offers: (option contracts) There are several ways in which an offer can be made irrevocable:

    (1)An Option Contract~ A promise to hold the offer open that meetsthe requirements for the formation of a contract that limits thepromisors power to revoke.

    (2)Beginning to perform under an offer that looks to acceptance byperformance only.

    (3)An offer in a signed writing that recites a purported considerationfor making of the offer and proposes an exchange on fair termswithin a reasonable time.

    Sale of Goods:U.C.C. 2-205 permits a merchant to make an irrevocable offer in a signed

    writing. This is called a firm offer . There are special rules when the contractform is supplied by the offeree.

    (1) Protection is afforded against the inadvertent signing of a firm offerwhen contained in a form prepared by the offeree byrequiring that such a clause by separately authenticated. If

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    the offer clause is called to the offerors attention and he signsit separately, he will be bound

    (2) U.C.C Section 2-302 may operate to prevent an unconscionableresult which otherwise would flow from other terms

    appearing in the form.

    Formation of Contracts Under the UCC Article 2

    Article 2 has its own rules on the formation of a contract that differs from thecommon law rules. For instance, under UCC 2-204 a contract can be formedin any manner sufficient to show agreement This is even true if the partiesfail to include terms that would result in the contract failing for indefinitenessat common law, UCC 2-204(3).

    UCC 2-204: Formation in General(1)A contract for the sale of goods may be made in any manner

    sufficient to show agreement, including conduct by both partieswhich recognizes the existence of such a contract

    (2)An agreement sufficient to constitute a contract for sale may befound even though the moment of its making is undetermined

    (3)Even though one or more terms are left open a contract for saledoes not fail for indefiniteness of the parties have intended to makea contract and there is a reasonably certain basis for giving anappropriate remedy.

    UCC 2-205: Firm Offers(1)An offer by a merchant to buy or sell goods in a signed writing that

    by its terms gives assurance that it will be held open is notrevocable, for lack of consideration , during the time stated or if notime is stated for a reasonable time, not longer than 3 months; butany such term of assurance on a form supplied by the offeree mustbe separately signed by the offeror

    UCC 2-206: Offer and Acceptance in Formation of Contracts(1)Unless otherwise unambiguously indicated by the language or

    circumstances:(a)An offer to make a contract shall be construed as inviting

    acceptance in any manner and by any medium reasonable inthe circumstances;

    (b)An order or other offer to buy goods for prompt delivery orcurrent shipment shall be construed as inviting acceptanceeither by a prompt promise to ship or by the prompt or

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    current shipment of conforming or non-conforming goods, butsuch a shipment of non-conforming goods does not constitutean acceptance if the seller notifies the buyer that theshipment is offered only as an accommodation to the buyer.

    (1)Where the beginning of a requested performance is a reasonablemode of acceptance an offeror who is not notified of acceptancewithin a reasonable time may treat the offer as having lapsedbefore acceptance.

    U.C.C. 2-207: Sale of Goods(1)A definite and seasonable expression of acceptance or a written

    confirmation that is sent within a reasonable time operates as anacceptance even though it states terms additional to or differentfrom those offered or agreed upon, unless acceptance is expresslymade conditional on assent to the additional or different terms.

    (2) The additional terms are to be construed as proposals for additionto the contract. However, b/t merchants such terms become part of the contract unless:

    (a)The offer expressly limits acceptance to the terms of the offer(b)They materially alter it; or(c) Notification of objection to them has been given or is given

    within a reasonable time after notice of them is received.Clauses that would normally materially alter the contractare those that result in surprise or hardship of incorporatedwithout express awareness by the other party.

    UCC 2-209: Modification, Recission, and Waiver(1) An agreement modifying a contract within this Article needs no

    consideration to be binding.(2)A signed agreement which excludes modification or rescission

    except by a signed writing cannot be otherwise modified orrescinded, but except as between merchants such a requirement ona form supplied by the merchant must be separately signed by theother party.

    (3)The requirements of the statute of frauds section of this Article (2-201) must be satisfied if the contract as modified is within itsprovisions

    (4)Although an attempt at modification or recission does not satisfythe requirements of subsection (2) or (3) it can operate as a waiver.

    (5)A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notificationreceived by the other party that strict performance will be required

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    of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

    Acceptance or Counter Offer: Acceptance:

    (1) An acceptance creates a contract. A counter-offer rejects the offer.So, the power of acceptance is terminated. The offeree can nolonger accept it. Therefore, there is no contract.

    (2) Where an offer invites an offeree to accept by rendering aperformance and does not invite a promissory acceptance, an optioncontract is created when the offeree tenders or begins the invitedperformance or tenders a beginning of it.

    Mutual assent is created once there is an offer and an acceptance.

    Counter-offer:A counter-offer is an offer made by an offeree to his offeror relating to thesame matter as the original offer and proposing a substituted bargaindiffering from that substituted by the original offer. Therefore, a reply to anoffer which purports to accept it but is conditional on the offerors assent toterms additional to or different from those offered is not an acceptance.

    (1)must propose a substituted bargain, or impose some condition notimplicit in the original offer. Anything less is not a counter-offer.

    (2)Adding conditions which are already implicit in the offer will notresult in a counter-offer.

    Steps to Answer a sale of goods questions~ U.C.C. 2-207(1)Was the transaction involving the sale of goods?(2)Were the parties both merchants?(3)Was the initial contact a preliminary negotiation, an inquiry that a

    reasonable person would understand to be not intended to concludea bargain without further manifestation of assent?

    (4)Was response a preliminary negotiation, as to a reasonable person?(5)Was the offer sufficiently definite in terms?

    (6)Was there a counter-offer or an inquiry to keep the negotiationsopen?

    (7)Was an option contract created by one party promising to keep theoffer open in exchange nominal consideration?

    (8)Was there a revocation of the offer?

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    (9)Was there acceptance, measured by the objective test of thereasonable person so that it was a mutual

    Consideration: The basics of Consideration and the Bargain Theory

    A contract is a voluntary act, manifesting assent to be bound withconsideration making promises binding on the parties.

    Consideration is a bargained for exchange established when the promisorand the promisee exchange promises in consideration for the otherspromise.

    The consideration of the courts is on the legal value element of consideration as well as the bargained for exchange element.

    Elements of the Bargain: The bargained for-exchange is established when the promisor gives apromise in exchange for a promise given by the promisee, who in turn entersinto the exchange for the promisors promise. Similar to the law of mutualassent , whether an exchange is bargained for is determined on an objectivebasis.

    Types of Consideration: Just about anything that parties want to bargain for can be consideration tosupport a promise. The classic description is some type of transactioninvolving a benefit or detriment to the parties, with typical contracts havingbenefits and detriments to both parties.

    Unilateral Contracts: The consideration for a promise might be a performance by the promissee,unilateral because there is only one promise involved. Other times, thebargain might involve a forbearance that is, refraining from doing anaffirmative act.

    Bilateral Contracts:

    The bargain involves one promise by the promisor in exchange for returnpromise by the promisee (expressly or implied). Two promises involved.

    Consideration Moving to or From a Third person:In the typical contract, the bargained-for-exchange moves between thepromisor and the promisee. Sometimes, the consideration bargained for is

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    not actually intended by the parties to be for the benefit of the promisor orthe promisee. The rule is that it does not matter from who the considerationmoves or to whom it ultimately reaches. The key is still whether there is abargained for exchange.

    Adequacy of Consideration: There is no rule in contracts assessing the market value of the exchangemade by the contracting parties. Therefore, as a general rule, courts do notrequire into the adequacy or sufficiency of consideration. Policing thefairness of bargains would be an insurmountable task for courts toundertake.

    Nominal consideration is in name only, and does not constitute realconsideration.

    Agreements lacking consideration: Gift Promises

    Entering into a contract is a voluntary act. Parties enter into contracts bymanifesting assent. Mutual assent to be bound is an essential element of contract formation, consideration is also required, not all promises areenforceable as contracts without some additional validating mechanism.Consideration is the best known of these validating mechanism makingpromises binding on the parties.

    Consideration is described a requiring bargained for exchange which isestablished when the promisor and the promisee exchange promises inconsideration for the others promises.

    Some types of agreements are not supported by bargained for exchange. These agreements are not enforceable as contracts. One type is the giftpromise.

    Gift PromisesPromises may be made that do not have any exchange element at all.Because of the absence of the bargained for exchange these promises arenot supported by consideration. With respect to reliance as a basis forenforcement of gift promises, the key factor seems to be whether theconduct in reliance was reasonably induced and foreseen by the promisor.

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    (1)Although a person might be morally obligated to abide by a giftpromise it is not typically enforceable as a contract.

    (a) Exception: Where the elements of promissory estoppal arepresent.

    Mixture of bargain and Gift:Courts do not typically inquire as to the sufficiency of any bargained forexchange actually made, the result is that even if the parties know that atransaction involves both a bargain and a gift promise, the bargain portionmay furnish consideration for the entire transaction. The gift itself, even if itimposes a burden on the recipient, is not ordinarily considered a bargain.

    Condition or Consideration:Arises when the promisor makes a promise to the promisee that requires thepromisee to act in some way that is purely incidental or conditional to

    receiving the benefit, a conditional gift.

    If the promisor makes the promise with no interest in the action required bythe promisee then there is no consideration. The key is whether thedetriment to the promisee requested in the promise is a condition that formsthe consideration for the promise or is merely an incidental detriment. If it isthe latter, then the promise is a gift.

    Battle of the Forms (U.C.C. 2-207)

    Under the traditional common law rule, acceptance must be on the exactsame terms as the offer, without variation. This is known as the mirrorimage rule Problems with the mirror image rule arises when the parties usepreprinted forms for the offer and the acceptance that contain differentterms.

    Mirror Image Rule: The mirror image rule operates as a last shot rule, since a contract isformed on the basis of the last form sent by one of the parties. Any forms orother responses containing additional or different terms than those proposedby the offeror would be counter-offers, rather than acceptances.

    Because the last shot rule acts as a counter-offer the terms of the contract,if formed, will be based on the terms of the party who sends the last counter-offer, which is then accepted by the other party.

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    Battle of the Forms (U.C.C. 2-207):Applies to the sale of goods, b/c this is statutory law it is binding and willtake precedence over case law.

    Goods are things that are moveable under U.C.C. 2-205(1):(1)Goods means all things that are moveable at the time of identificationto the contract for sale other than money in which the price is to bepaid, and things in action (intangible things).

    Because many companies have their own forms with specific terms &conditions related to the sale their forms will usually include termsfavorable to themselves. Applying the mirror image rule would result inone partys terms and conditions related to the sale becoming part of thecontract merely b/c the form was sent to the other party last, with noconsideration of whether the parties have actually agreed to those terms or

    to what the parties might have otherwise have negotiated.

    UCC 2-207 was drafted to modify the harsh effects of the mirror imagerule. The goal was simply to prevent parties from reneging on a deal afterthe fact due to inconsequential variations b/t the buyer and sellers forms,not necessarily to favor one party or the other.

    The following methods are employed by 2-207 to alter the mirror imagerule:

    (1)A definite and seasonable expression of acceptance or a writtenconfirmation which is sent within a reasonable time operates as an

    acceptance even though it states terms additional to or differentfrom those offered or agreed upon, unless acceptance is expresslymade conditional on assent to the additional or different terms.

    (2)The additional terms are to be construed as proposals for additionto the contract. Between merchants such terms become part of thecontract unless:

    (a)The offer expressly limits acceptance to the terms of the offer;(b)They materially alter it; or(c) Notification of objection to them has already been given or is

    given within a reasonable time after notice of them isreceived.

    (1)Conduct by both parties that recognize the existence of a contractis sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such cases, theterms of the contract consist of those terms on which the writings of the parties agree, together with any supplemental termsincorporated by this act.

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    The Mailbox Rule

    The mailbox rule states that an acceptance is effective upon dispatch,without regard to whether it ever reaches the offeror. This rule provides thatan acceptance is effective when put in the mail or dispatched. This ruleallocates the risk to the offeror that a letter of acceptance might get lost inthe mail and never arrive. The offeror, as master of the offer, could haveguarded against the risk by restricting the means of acceptance to excludemail or to specify that acceptance is only effective upon receipt.

    Option Contracts:A promise to keep an offer open becomes irrevocable if the promise issupported by consideration resulting in an option contract. However, themailbox rule does not apply to option contracts since they are subject tospecific time limits. The general rule between the parties is that exercise of an option must be had by actual receipt by the offeror before the time periodexpires.

    Revocations by Mail:If the offeror has not yet received the acceptance in the mail, the offerormight send a letter to the offeree revoking the offer. Any such attemptedrevocation, though, must be received by the offeree prior to acceptance inorder to be effective. If the offeree has already accepted, then the attemptedrevocation is too late, as a contract has already been formed.

    Parol Evidence Rule:

    What is a party offering to prove?

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    One party claims that the other is in breach of contract for failing to performan obligation. Parol evidence is evidence extrinsic to the parties agreement,evidence outside the parties agreement. When two parties enter into anoral agreement, one party may introduce written evidence extrinsic to the

    oral agreement.

    Types of Extrinsic Evidence:(1)If an agreement is written or oral any evidence prior to the agreement

    that is not included in the agreement(2)Custom or usage of trade(3)Evidence defining ambiguous terms found in the contract

    What purpose is the evidence offered?A parol evidence rule issue arises when one party offers evidence of anobligation and the other party claims that that obligation is not part of the

    parties agreement. That parol evidence might an oral understanding , awriting , or a trade usage . The task of a court confronted with a parolevidence rule issue is to find the agreement of the parties by decidingwhether that obligation is part of the contract or not.

    Parol evidence rule is not applicable when the evidence is offered for someother purpose. These include:

    (1)A separate enforceable agreement(2)An issue of interpretation(3)A modification(4)A formation issue

    (5)A condition precedenta. The exception is when parties have agreed to condition the

    performance of their contract on the happening of an event.If the event fails to occur, the contract is not performable &parol evidence will be admitted to show condition existed.

    (6)A consumer protection act

    The parol evidence bars evidence only of understandings made before or atthe same time that the parties reduced the agreement to writing. It does notapply to understandings made after that time. (Modification issue).

    Although determining whether a modification is effective does not representan application of the parol evidence rule, the analysis is analogous. The 1 st

    step is to find the original agreement. Then the evidence alleging amodification may be heard. The rules governing modification of contracts,not parol evidence rule, will apply.

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    Oral Agreements:UCC 1-201(b)(3) defines agreement as the bargain of the parties in fact, asfound in their language or inferred from other evidence. Therefore, there is

    nothing wrong with agreements being partly oral & partly written.

    The policy behind the parol evidence rule are also evident in the rules onmodification, a distrust of oral agreements. A party can make up orincorrectly recall an oral understanding or an oral modification. Anotherpolicy is to show that there is a defense to contract formation. If no contractwas formed, then a party cannot be in breach.

    Extrinsic evidence is generally permitted to prove all the traditional defensesthat show lack of formation of a contract: offer, acceptance, consideration,capacity, illegality, duress, fraud, mistake, and the like.

    Some courts will not recognize the fraud exception when the subject matterof the fraud is addressed in the contract. This is because one of the elementsof fraud is that the defrauded party reasonably relied on the fraud, and thedocument clearly shows that the purchaser did not reasonably rely on it.

    Parties may introduce evidence that their agreement was based onconditions that they agreed to which is not found in the written agreement.

    Once the parties have reduced their agreement to a writing that they intendto contain the final and complete statement of their agreement, neither

    party may introduce evidence that contradicts or supplements the terms of that agreement.

    Parol evidence rule may not be invoked when the parties intended toentirely by a written contract and not by their prior oral agreement.

    Did the parties intend the writing to contain the final and completestatement of their agreement?

    Two types of written agreements: determined by the intentions of the parties(1)Complete or total integration

    a. The writing is a complete and exclusive expression of all the terms

    on which the agreement was reached.b. In a complete integration, the parties writing is complete &

    exclusive expression of all the terms on which agreement wasreached. If oral agreement is not found in the writing, it will beexcluded.

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    a. The writing is a final expression of the terms that it contains, butthe agreement could contain other terms.

    b. If the agreement could contain other terms, then the oralagreement will be included or allowed.

    Intentions of the parties:Merger Clause:

    This agreement constitutes a final written expression of all the terms of thisagreement and is a complete & exclusive statement of those terms. Notneeded when an agreement is carefully negotiated and carefully prepared byboth parties.

    When no merger clause exists use the objective test to conclude whether areasonable contracting party would naturally & normally have excluded the

    term from the writing.

    Does the offered evidence contradict or supplement the writing?Supplementary Evidence:If the written agreement is not a complete integration, then thesupplementary oral understanding is considered to be part of the agreement.

    Contradictory Evidence:If the written agreement is not a complete integration, then the contradictoryoral understanding is not considered to be part of the agreement. Thisanalysis gives greater weight to the written document.

    Supplementary v. ContradictoryAsk if the two terms could reside in the same agreement with reasonableharmony.

    The UCC Parol Evidence Rule: Terms may only be explained or supplemented:

    (1)By course of performance, course of dealing, or usage of trade; &(2)By evidence of consistent additional terms unless the court finds the

    writing to have been intended as a complete & exclusive statement of the terms of the agreement.

    Two kinds of terms:(1)The agreed terms in the confirmatory memo(2)The terms in a writing that is final and that is a partial integration &

    those terms may not be contradicted by evidence of any prioragreement or of a contemporaneous oral agreement.

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    To determine if a word is ambiguous the court will look to the term in itscommercial context.

    Statutes of Frauds

    (1) Contracts that are governed by the Statute of Frauds:(1)Contracts for sale of land or interest in land(2)Contracts that cant be performed within a year(3)Contracts for the sale of goods over $500(4)Surety Contracts(5)Performance that will not be completed by end or lifetime(6)Marriage

    If no then an oral contract is enforceable.

    (1)If yes, is the contract reflected in writing that satisfies the statute?a. Contracts under S of F can be written on anything

    1. Can be a series of writings2. Can be lost by time of litigation & its existence can be shown

    through testimonyb. Writing must certain info.

    1. At common law it must identify parties, nature of exchange,and set forth all or must material terms

    2. UCC 2-201 states that the only term that must be statedcorrectly is quantity.

    c. Writing must be signed by the party against whom the contract isbeing enforced

    (1)Does Contract fall within any of the exceptions?a. Partial Performance

    1. Exception: When a party seeking enforcement of an oralcontract, has performed to such an extent thatrepudiation of the contract would lead to an unjust orfraudulent result the court will disregard the

    requirement of a writing and enforce an oral agreement.b. Promissory estoppal inducing reliance by offeree

    If yes, contract is enforceable.

    If no, contract is unenforceable.

    Pre Existing Duty Rule

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    Performance of a legal duty owed to a promissor, which is neither doubtfulnor the subject of honest dispute, is not consideration.

    The requirement of consideration:(1)a promise will be legally binding only if the promise is supported by aconsideration

    (2)A sufficient consideration may consist of: 1. A performance, 2. Apromise

    The basics of the pre existing duty rule:(1)When the promisee merely performs an existing duty, there is no new

    legal detriment on the promisee(2)Performance of the legal duty is not induced by the promise or, the

    promisee ought not be permitted to assert such inducement.

    (3)There is no exchange, since one party is simply providing what he orshe is required to do anyway.

    A performance or promise cant serve as a consideration for a promiseunless it is bargained for in exchange for the promise. In order to beconsidered as bargained for in exchange for a promise, a prospectiveperformance must both induce the promise and it must be induced by thepromise.

    Third Party contractual obligations: The restatement takes the position that a promise to perform an already

    existing contract duty can serve as consideration for a new contract withsomebody else.

    An offer for a unilateral contract places no duty to perform on the offeree, sothe act constituting acceptance of the unilateral contract can serve as theconsideration for the second contract

    A promise to perform a pre-existing contract duty to another does result infresh legal detriment.

    Contract Modification:

    One party provides something new to the other, an extra or a discharge,while the other does nothing extra beyond what he or she already had acontractual duty to do anyway or not even that.

    A literal application of the pre-existing duty rule would suggest that suchone sided modifications of contracts should never be enforced. The

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    beneficiary of one-sided contract modification supplies no newconsideration, but instead only does what he was already obligated to do.

    Exception:

    Parties may mutually agree to rescind their original contract andreplace it with a new contract, this act will reuse all the considerationsunder the original agreement. The rescission relieves the parties of their respective duties under the original contract. Then the very sameperformance can serve as the basis for the

    consideration under the new one.

    Restatement 89:A promise modifying a duty under a contract is binding if the modification isFAIR and EQUITABLE in view of circumstances NOT ANTICIPATED by theparties. Only applies to contract not fully performed on either side; an

    executory contract exists on both sides.

    S 89- Modification of executory contracts:Contract is binding if:(1)Modification is fair & equitable as to unforeseeable circumstances

    at contract formation(2)As provided by statute(3)When justice requires such b/c of one parties change in position

    due to reliance

    Thus, preserving the factual basis for a mutual relinquishment (exchange) of

    rights under the old contract (rescission) followed by a new contract on themodified terms.

    If a contract is fully performed on one side modification cant be viewed asan adjustment of an exchange relationship. Rather, the modification wouldamount to a simple oral discharge of a part of debt.

    UCC 2-209~Eliminates the pre-existing duty rule & permits modification of acontract without consideration. The effect of 2-209 is:

    (1)To make contracts for the sale of goods rather freely modifiablewithout consideration, subject only to the general U.C.C. obligation

    of good faith.

    Accord & Satisfaction:Accord:

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    An accord is an agreement between debtor & creditor that the debtor willprovide a DIFFERENT performance from the one originally owed to thecreditor.

    Satisfaction: The performance of the accord, when the agreed-to different performance isrendered & accepted, where the effect of a satisfaction is to discharge theoriginal obligation. Performance of part of an obligation is not consideration for the discharge of the remaining part: payment of a lesser sum cannot be any satisfaction forthe whole.Exceptions:

    (1)Payment of a lessor amount earlier than due;(2)Payment of a lesser amount at a different place from the agreed place

    of payment(3)A gift as payment

    Executory Accord & Substituted contract:An executory accord is a mere agreement to take something DIFFERENTfrom the original performance in satisfaction. Traditionally, an executoryaccord had no legal effect: debtor was not bound to render the differentperformance, nor was creditor obligated to accept (unilateral contract)parties are not bound until performance has begun.

    Executory accord would not affect the original debt, only accord and

    satisfaction would.

    Liquidated debt or claim, undisputed and due: Those claims about which there is no dispute as to the amount or validity

    Unliquidated debt or claims:(1)Uncertain in amount(2)Uncertain as to their validity

    To validate a discharge of a debt, there must be sufficient consideration

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