California Bar Exam Contracts Overview And Short Outline

Overview Contracts Checklist

‒        “Armadillos From Texas Produce Bad Rally Towels”

  • Applicable Law
  • Formation of Contract
  • Terms
  • Performance/Excuse thereof
  • Breach
  • Remedies
  • Third Party Rights

Contract Essay Strategy

‒        1) Read Call of the Question FIRST.

‒        2) Write Down Checklist

‒        3) For Ks, be prepared to argue alternatives!

  • Define all legal terms

I. DOES THE UCC APPLY?

‒        UCC or Common Law? Which law applies?

  • UCC governs Ks for the sale of goods. (Because “goods” is a legal term, you should define it). Good are moveable tangible items
  •  Common law governs contracts for services.
  • Mixed goods/services- apply predominate factor test.

‒        Merchants?

  • If UCC problem, then in a separate paragraph determine if the parties are merchants if facts give rise to the issue.

II. IS THERE A VALID CONTRACT?

‒        A. Offer: An offer is a manifestation of a present intent to contract demonstrated by a promise, undertaking or commitment, stated in definite and certain terms, and communicated to an identifiable offeree.

‒        B. Merchant’s Firm Offer or Option Contract?

  • Tip: Only raise if an issue and you should raise it before you discuss termination of the offer issues.

‒        C. Has the offer been terminated? (note- “Termination of Offer” should not be your head note. Your head note should be of the issue, for example: Revocation.)

  • Lapse of time
  • Revocation: A revocation is evidence by words or conduct of the offeror terminating the offer. It’s effective upon receipt except when it’s irrevocable due to an option contract, merchant’s firm offer, or when there’s detrimental reliance.
  • Rejection: Words or conduct of the offeree rejecting the offer. It’s effective when received. Counteroffer acts as rejection
  • Termination by operation of law
  • Death or insanity of either party
  • Destruction of subject matter of the contract
  • Supervening illegality
  • D- Death / Destruction of subject matter / Disability
    I- Illegality / Insanity
    R- Rejection by offeree
    T- Time, lapse of
    C- Counteroffer
    A- Acceptance
    R- Revocation by offeror

‒        D. Acceptance: An acceptance is an unequivocal assent to the terms of the offer made by one with the power of acceptance.

  • Method of acceptance: promise to perform, starting to perform, or complete performance
  • Mode of acceptance: manner authorized by offer or any reasonable manner
  • Effective upon dispatch
    • mailbox rule
    • limits on mailbox rule

‒        E. Consideration: Consideration is a bargained for exchange of legal detriment or legal benefit

  • Things to consider:
    • adequacy generally irrelevant
    •  past consideration
    • “pre-existing” duty rule
    • part payment to settle existing debt
    •  payment to settle legal claim
    • payment of debt barred by statute of limitations
    • Promissory estoppel or detrimental reliance as a substitute for consideration

‒        F. Defenses to formation

  • 1. Statute of frauds
    • Applies to MY LEGS (marriage, Ks that cannot be performed within 1 year, land, executor, goods worth $500 or more, and surety)
    • Tip 1: Always raise if K formation is an issue.
    • Tip 2: If an exception applies, then for best organization you should first conclude K fails for SOF and then separately head note and IRAC the applicable exception(s).
    • Exceptions for Goods rule: remember SWAP: Specially made goods, Written confirmation (Merchant’s Confirmatory Memorandum), Admission in court, and Performance)
    • 2. Mistake
    • 3. Illegality
    • 4. Lack of capacity
    • 5. Unconscionability
    • 6. Duress
    • 7. Fraud

III. TERMS OF THE CONTRACT

‒        Additional Terms

  • Under common law, acceptance must mirror the offer.
  • Under the UCC, an acceptance which adds terms to the offer is valid. Between merchants, the additional terms become part of the contract unless they materially alter the contract, unless the offeror objects, or unless the offer is limited to its terms. UCC § 2-207

‒         Ambiguous Terms

  • Court will apply ordinary meaning per K rules of construction
  • Custom and usage in the industry
  • Course of dealing between the parties

‒        Parol Evidence Rule

  • Evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary contractual terms is inadmissible if the written contract is intended as a complete and final expression of the parties.

‒        Modification

  • Additional consideration needed under the common law
  • Under UCC, no consideration needed so long as in good faith
  • Modification may need to satisfy Statute of Frauds
    • Oral modifications?

IV. THIRD PARTIES RIGHTS OR OBLIGATIONS

‒        Third Party Beneficiaries

  • 1. Intended or Incidental TPB?
  • 2. Creditor or Donee TPB?
  • 3. Have rights vested?
  • 4. Who can sue whom?
    • TBP v. promisor
    • promisee v. promisor
    • TBP v. promise

‒        Assignment of Rights

  • Assignments are generally valid unless they materially alter the obligor’s duty or risk, or unless they are prohibited by law
  • Does obligor have defenses against assignee?
  • What happens when there is more than one assignment of the same right?

‒        Delegation of Duties

  • Delegation of duties is permitted except where prohibited by the contract, where the duties involve personal judgment and skill or where the delegation would change the obligee’s obligations. Obligee may sue delegator and delegatee.

V. Anticipatory Repudiation

A. Rule

In cases where the other party’s words, actions, or circumstances make it clear that he is unwilling or unable to perform, the aggrieved party may: (i) sue immediately, (ii) suspend his own performance and wait and see until the due date, (iii) treat the repudiation as an offer to rescind and treat the contract as discharged, or (iv) ignore the repudiation and urge performance.

B. Adequate Written Assurances

If reasonable grounds for insecurity arise regarding the other party’s performance then you may in writing demand adequate assurance of due performance. Until you receive this, you may suspend your own performance. If none is given within a reasonable amount of time (not over 30 days), you may treat the contract as repudiated.

VI. PERFORMANCE

‒        Conditions

  • Types of conditions
    • Express, implied, or constructive
    • Precedent, concurrent, subsequent

‒        Satisfaction of conditions

‒        Defenses to Nonperformance

  • Excuse of conditions
    • Wrongful prevention
    • Voluntary disablement
    • Anticipatory repudiation
    • Waiver
    • Estoppel
  • Discharge of duties
    • Impossibility
      • death or physical incapacity
      •  illegality
      • destruction of subject matter
      • objective standard.
      • Impracticability
        • extreme and unreasonable difficulty that was unanticipated
        • subjective test
        • Frustration of purpose
        • Rescission
        • Novation
        • Accord and satisfaction

VII. BREACH

‒        Is the breach major or minor? Note: If minor, then the non-breaching party is still obligated to perform. His/her performance is not excused.

VI. DAMAGES & REMEDIES

‒        Expectation Damages- benefit of the bargain.

  • If UCC, then consider Cover

‒        Consequential Damages

  • Must be foreseeable, certain, i.e. not speculative, and unavoidable. Look for the words “loss revenues”, “new business” to raise issue.

‒         Incidental Damages

‒        Liquidated damages

  • actual damages difficult to calculate at the time the contract was formed and amount is a reasonable forecast of damages

‒        Punitive damages

‒        Duty to Mitigate

‒        Restitution- Quasi-K

  • Tip: Make sure to raise Quasi-K anytime K formation is questionable.

‒         Specific Performance

  • Tip: Mini-IRAC the elements if it is specifically asked for in the call or fact pattern or if it is jumping off the page as a major issue. If it is not a major issue, then just raise and discuss in one paragraph.

‒        Recission

‒        Reformation

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