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TCL > October 2002 Issue > "Contract Rap"

The Colorado Lawyer
October 2002
Vol. 31, No. 10 [Page  63]

© 2002 The Colorado Lawyer and Colorado Bar Association. All Rights Reserved.

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Features
CBA President's Message to Members

"Contract Rap"
by John E. Moye

I had the pleasure of teaching bar refresher courses for thousands of new lawyers across the country for more than twenty-five years. Once, I computed that I had lectured to over 250,000 bar review students, and I think that is an understatement. But the task of making a nine-hour lecture on "Contracts" interesting and exciting for the students always was a challenge. For many years, I used rock and roll lyrics to illustrate the legal principles ("Tell Laura I Love Her" is an offer to make a unilateral contract). In the late 1980s, however, the songs were not so memorable and the lyrics, not so usable—I needed to update my material. I wrote the "Contracts Rap" and, with the help of my daughter Megan who recorded a rap beat playing her synthesizer, I performed the rap during each lecture to show how easy and fun the law of Contracts could be.

While many of you may have heard it or heard of it, it has never been published until now. So, for your enjoyment, here is the "Contracts Rap," annotated to show that it does describe substantively the law of Contracts. Now to recite it, start snapping your fingers, get a little lift in your gait, get a good rhythm, and . . . RAP:

If I want to make an offer,1 here’s what I have to do
I have to make a commitment2 and tell it to you.3

If I want my offer to be real firm
It has to contain some definite terms.4
If no one tries to revoke or reject5
I’m likely6 to get just what I expect.7

If you don’t reject,8 you can accept instead9
By promising to do just what I said.10

If my offer’s unilateral, then you must do
Exactly what I told you to.11

And if you promise,12 even if you pretend it,13
It’s going to be effective as soon as you send it.14

Next we need the quid pro quo.15
That’s the element of bargain, don’t you know.

For consideration, we must look to see
If my promise results in a bargain for me.16

If you’ve got some detriment, give it to me17
And your promise can’t be illusory.18

And when you finally come to your senses,
You will look to see if you have any defenses.

The Statute of Frauds19 or incapacity20
Mistake21 or unconscionability22

Misrepresentation,23 fraud,24 and duress,25
An ambiguity makes a hopeless mess.26

If we have a third party,27 we know the test
The rights are enforceable when they vest.28

But if you want a unique situation,
Consider assignment or delegation.29

If the right is assignable30 and properly assigned,31
You can assign to anyone you can find.32

If you assign to whomever you choose,
Some will win and some will lose.33

When all the assignees begin to fight,
It’s first in time, first in right.34

Should you delegate a duty,35 but the delegate abstains,36
To the delegator the obligee complains.37

If the delegator has paid the delegate a fee,38
The obligee becomes a beneficiary.39

Every promise is conditioned, express, or implied40
Before, after, or side-by-side.41

You excuse the condition if you won’t cooperate42
Or if you choose to repudiate.43

If the condition isn’t waived44 or estoppel won’t apply45
The condition must be satisfied bye-the-bye.46

When a promise is conditioned and the condition is excused,
The performance of the duty cannot be refused.47

You may modify,48 rescind,49 or try to novate50 it.
You may claim it’s impossible51 or try to frustrate it.52

To accord and satisfaction, you may reach53
To try to claim you’re not in breach.

When a breach has finally occurred,54
Our remedies will be the final word.55

Put the non-breaching party in this fight
Where performance would have put him if it were done right.56

Analyze the damages and if the remedy is bleak,57
Use specific performance if the subject’s unique.58

And under the Code you can cover or sue59
To try to get the goods that you are due.

And for the seller, the remedy is nice
Try resale, profits, or a suit for the price.60

And finally we reach our last contract tool
When we know to use the parol61 evidence rule.

The evidence admissible when we are fighting62
Cannot be used to vary63 the writing.64

I KNOW YOU FOLKS WILL NEVER BE BACK65
BECAUSE NOW YOU KNOW THE LAWS OF CONTRACTS!!

 

NOTES

1. An offer is always voluntary by the offeror.

2. A mere invitation to deal or an inquiry is not an offer. The language and conduct from the offeror must indicate that the offeror is committing to enter into a contract. The test is whether a reasonable person in the position of the offeree would conclude that the offeror is committing to make an offer.

3. The commitment must be communicated to an identified offeree, and actual communication is required. No one can accept an offer until he or she knows about it. Crossing offers do not create a contract even though they contain the same terms. The offeree must be identified in the facts or be able to be identified from the language of the offer. The offer is personal to the identified offeree and cannot be transferred to others, but with an offer made to the public, the offeree will be identified when the offeree learns about the offer and commences the performance required by the offer.

4. The terms must be definite and certain. Subject matter (quantity of goods, description and price of real estate, term of employment) must always be ascertainable in the offer. Other material terms may be omitted, but if the offer addresses them, it must do so unambiguously. An agreement to agree is definite, but only creates an obligation to negotiate in good faith.

5. An offer can be terminated by revocation by the offeror or rejection by the offeree. If an express revocation has been received by the offeree or the offeree’s agent, or if the offeree learns from a reliable source of conduct by the offeror that is inconsistent with a contract, the offer is terminated. If an express rejection is received by the offeror or the offeror’s agent, or if the offeree’s conduct allows the offer to lapse, the offer is terminated.

6. Likely, but not always. An offer could terminate by operation of law: the subject matter could be destroyed or become prohibited by law or the offeror or offeree could die or become incapacitated before the offer is accepted.

7. The offeror always determines the terms of the contract that the offeror expects. Any deviation in the terms of the offer will be a counter-offer at common law, and a counter-offer under the Uniform Commercial Code ("UCC") if the words of acceptance are expressly conditional on a new or different term. UCC § 2-207.

8. The offeree can reject the offer expressly or by conduct in allowing the offer to lapse by its own terms. The rejection must be received by the offeror or the offeror’s agent to be effective.

9. If the offer has not been terminated, the offeree can accept the offer by an express promise or by conduct required by the offer.

10. An express promise to accept an offer must be a "mirror image" of the offer for common law contracts. Under the UCC, an acceptance may contain new or different terms that are proposals for addition to the contract in non-merchant contracts, and automatically become part of the contract in a transaction between merchants, unless the offer is limited to its own terms, the offeror rejects the term, or the term materially alters the obligations under the contract. UCC § 2-207.

11. A unilateral offer requires that the offeree perform precisely the act required by the offer, and must give notice to the offeror of the completion of the performance if the offer requires it or if the performance would not otherwise come to the offeror’s attention.

12. An offer to make a bilateral contract can be accepted by an express promise by the offeree, and tested with the same objective test to determine if the offeree is making a commitment.

13. Even if the offeree subjectively does not intend to enter into a contract, if a reasonable person would perceive the offeree’s promise as a commitment, it will be a valid acceptance.

14. The mailbox rule makes an express bilateral acceptance effective when it is dispatched the way the offer said, the way the offer came, or another reasonable way (as speedy and as legally effective as the way the offer was presented). The mailbox rule will not apply if the offer says it may not be used to accept an offer under an option contract at the end of the option period; if an acceptance is followed by a rejection received before the acceptance on which the offeree relies and changes position; and if a rejection is sent before the acceptance—whichever is received first is effective.

15. Consideration is measured one promise at a time—this for that. Identify the promisor and the promisee of each promise and test the promise for consideration. For a promise to be enforceable, it must involve a current exchange of a performance; detriment from (or in a minority of states, a benefit to) the promisee; and the promise must be obligatory, not illusory.

16. The promise must seek a current exchange of performance from the promisee. A promise to make a gift or to satisfy a moral obligation is not enforceable because of this element. If a promise is made for a past act, there is no current exchange of performance. Exceptions are recognized in most states for a voidable debt revived by a later written promise and where the promisor has requested a performance that the promisee performed with an expectation of payment; a later promise to pay for the performance will be enforceable.

17. The promise must be to do an act, which the promisor is not otherwise obligated to do, or to not do an act (forbear), which the promisor has a reasonable belief in a right to do. The amount of detriment is not normally an issue unless it is a sham or nominal sum. Some states will allow a benefit to the promisee to substitute for the detriment requirement. If there is already a preexisting legal or contractual duty to do an act, there will be no detriment in a promise to perform the same act, unless unforeseen difficulties have made the first obligation unenforceable or unless the parties have a good-faith dispute over what the original duties are and resolve it with new promises.

18. A promise must be obligatory. If the promisor reserves the power to decide whether to perform the promise, the promise is illusory and unenforceable. Illusory promises do not include: (1) promises without a definite undertaking that still require best efforts and good-faith; (2) output and requirement contracts that require performance based on prior measures or similar parties; and (3) satisfaction conditions that may be exercised only in good faith.

19. The Statute of Frauds requires that contracts that are valuable or easily based on supposition be represented by a writing or performance as tangible evidence of the existence of the contract. Tangible evidence includes a writing that describes the parties, subject matter, material terms and conditions, and that is signed by the party to be charged. Performance makes the agreement enforceable, but only to the extent of the performance. The Statute typically applies to real estate contracts, sales of goods for $500 or more, contracts that cannot be performed within one year from the formation of the contract, suretyship/guaranty contracts (promises to answer for the debt of another that is not for the main purpose of benefiting the promisor), and contracts where marriage is the consideration (pre-nuptial, post-nuptial, and dissolution agreements).

20. Incapacity applies to infants (under 18 years of age) and mentally infirm persons. These contracts are voidable. They may be affirmed by the incapacitated party once the incapacity has ended. Incapacitated parties are nevertheless liable for contracts for "necessaries."

21. Mistakes come in two types. A unilateral mistake is not a defense to a contract unless the other party knows or should have known that the mistake is being made. A mutual mistake (where both parties make a false common assumption about a material issue in the contract) is voidable by either party.

22. Unconscionability applies at the time of formation of the contract, the bargaining process is unfair (resulting in unfair surprise—procedural unconscionability), or the terms are unreasonably favorable to one party (resulting in oppression—substantive unconscionability). The court decides whether a contract is unconscionable and can do anything to make the contract fair, including avoiding the contract, modifying the offensive terms, or severing terms from the contract.

23. Misrepresentation is fraud in the inducement. Where the party is deceived as to the subject matter of the contract, this defense makes the contract voidable by the deceived party.

24. Fraud in factum (where the party is deceived into signing something that is discovered to be a contract) creates no obligation and is void.

25. Duress can be personal (by a wrongful act or threat that overcomes the free will of a party), and the contract is voidable by the party subjected to the duress. Duress also can be imposed by undue influence, where a trusted person induces a subservient party to enter into a contract. Economic duress (taking advantage of another’s bad economic situation) is not a defense unless the party taking advantage caused the bad economic situation.

26. Remember the famous case of the Ship Peerless, where the seller and buyer specified delivery on the Ship Peerless, but there were two ships by that name, and each party was thinking of the other ship. If there is an ambiguous material term in the contract, there will be no contract unless both parties intend the same meaning to the ambiguous term or one party knows there is an ambiguity and the other does not, in which case counsel enforces the contract the way the non-knowing party thinks.

27. Third parties who are named in the contact at the time of formation are third-party beneficiaries. Assignments and delegations always involve third parties who get rights or obligations after the contract was formed.

28. Where one or more of the promises in a contract run to the benefit of a third party, identify the promisor, the promisee, and the third party for each promise. If the beneficiary is intended (named in the promise, performance directly from the promisor, and an intention to benefit from the promisee), the beneficiary’s rights will vest when the beneficiary manifests assent to the performance, changes position in reliance of the performance, or commences enforcement proceedings seeking performance. That defines the beneficiary’s right to performance based on the promise at the moment of vesting. The beneficiary can sue the promisor for the promise as it exists at vesting, and the promisee can sue the promisor for specific performance of the promise. If the beneficiary is a creditor beneficiary (one who has received this promise in satisfaction of an underlying obligation already owed by the promisee), the creditor beneficiary also can sue the promisee when the promisor fails to perform.

29. Assignment and delegation may occur after the formation of the contract. For assignments, identify the assignor, the assignee, and the obligor. For a delegation, identify the delegate, the delegator, and the obligee.

30. A right may not be assigned and a duty may not be delegated if: (1) the contract prohibits it (assignments are allowed unless the contract is void as a result of an assignment); (2) the law prohibits it; (3) there is material increase in the burden or risk because of the assignment or delegation (personal services contracts and requirement and output contracts). Any time there is a change in the time and place of performance, suspect that the right is not assignable and the duty is not delegable.

31. Proper assignment requires a description of the right assigned and words of present transfer (hereby assign). Through a proper assignment, the assignee becomes the real party in interest for enforcement of the right assigned. The assignor makes a warranty that the right is assignable and is enforceable.

32. The assignor may have assigned the right, but still retains the power to assign again.

33. Multiple assignments may be made, and they are enforceable, except: gratuitous assignments are revoked unless there has been a symbolic writing delivered or the assignee has detrimentally and reasonably changed position in reliance on the assignment.

34. The first valid unrevoked assignment prevails over subsequent assignees, except if a subsequent assignee, in good faith and without notice, gets the obligor to perform by (1) payment, (2) judgment, (3) a novation, or (4) a delivery of a symbolic writing (the "Four Horsemen" of assignments).

35. The duty is delegable unless the contract prohibits it, the law prohibits it, it involves personal services, or there is a substantial change in the character or nature of performance as a result of the delegation. These elements are more strictly construed for delegations than for assignments.

36. If the delegate fails to perform the delegated duty, the obligee will not receive the required performance, and the contract will be breached.

37. The delegator remains a surety for the performance of the delegate and is not relieved from performance through the delegation.

38. If the delegate has agreed to perform the duty in exchange for consideration from the delegator, a new contract is created.

39. In the new contract created between the delegator and the delegate, the delegate-promisor promises the delegator-promisee to perform the duty for the obligee-beneficiary. A third-party beneficiary contract is created in favor of the original obligee. The obligee is a creditor beneficiary because the delegator is using the performance of the delegate to satisfy an existing obligation owed to the obligee. The obligee can sue either the delegate-promisor on the third-party promise or the delegator-promisee on the underlying obligation.

40. All contracts have conditions. They may be stated in the contract (express) or be implied from the respective performance of the parties (constructive). Constructive conditions are found when: (1) one performance occurs before the other, and the first is a condition to the second; (2) one performance takes longer than the other, and the longer is a condition to the shorter; and (3) when performances are simultaneous, they are conditioned on each other.

41. Conditions are described in terms of temporal effect on performance. A condition precedent must occur before a party is obligated to perform. A condition concurrent must occur at the moment of the performance. A condition subsequent occurs after a party is obligated to perform and, if the condition does not occur, the performance is discharged.

42. When a party has some control over whether a condition will occur, failing to cooperate in the performance of the event or prevention or hindrance to keep the event from occurring causes the condition to be satisfied.

43. An anticipatory repudiation has the effect of excusing all conditions on the repudiating party’s performance. It also creates a present breach of the contract. The repudiation can be overt or by conduct indicating a prospective inability to perform. Uncertain repudiations may be tested by a demand for adequate assurance of performance, which, if not responded to within a reasonable time, will be a repudiation.

44. A party may waive a condition unilaterally after the event if the condition has failed to occur.

45. A party may be estopped from demanding that the condition occur if, before the event is to occur, the party entitled to the condition says he or she will not require the occurrence of the condition and the other party changes position in reliance on the statement.

46. If the condition is not excused by failure to cooperate, repudiation, waiver, or estoppel, it must be satisfied. If it is an express condition, complete satisfaction is required. If it is a constructive condition, substantial satisfaction is required. Conditions in divisible contracts can be satisfied or excused in their divisible portions of the contract.

47. Once a party’s performance is no longer conditioned (because the condition has been satisfied or excused), the duty to perform under the contract becomes absolute, and the performance must occur if the duty has not been discharged.

48. A modification is a new agreement that changes the performance in the original contract. The new agreement must meet all of the formation rules except that no consideration is required in UCC contracts, as long as the modification is made in good faith. If modified, the original duties that have been changed will be discharged.

49. A mutual rescission eliminates duties under the original contract. The mutual rescission must meet all of the formation rules to be enforceable.

50. A novation involves a new party, a new performance in place of an old party, and an old performance under the original contract. If properly formed, a novation discharges the old party and the old performance.

51. Impossibility occurs when objectively no reasonable person can perform the contract. It occurs when the subject matter is destroyed, there is a supervening illegality, death or illness of a personal performer occurs, or there is a failure of an agreed source of supply. In the UCC, this is called casualty to identified goods before risk of loss has passed to the buyer. If the contingency that prevents performance of the contract is subjective, it is called impracticability. Impracticability may be temporary, in which case the duties are only suspended and will be reestablished when the cause of impracticability ceases to operate.

52. If a contingency destroys the principal objective or purpose of the contract, and both parties know the purpose at the time of formation of the contract, frustration will discharge the duties.

53. An accord and satisfaction resolves disputes over the existing duties under the original contract. If there are multiple disputes, this also is called an "account stated." The new agreement is the accord, and it must meet normal formation rules. The original duties are not discharged, however, until the accord has been completely performed (satisfaction).

54. If a duty has not been discharged, it must be performed or there will be a breach. Complete performance is required for express contract terms and for single deliveries of goods under the UCC (subject to the seller’s right to cure through the time for performance). UCC §§ 2-601 and 2-507. Substantial satisfaction is required for all other duties.

55. Distinguish UCC and non-code remedies, legal, and equitable remedies. Non-code legal remedies include agreed damages (liquidated damages provisions). They are enforceable if the damages were not reasonably ascertainable at the time of formation and the amount stated is reasonable (not void as a penalty).

56. Expectation damages are the typical contract recovery in a non-code case. Put the non-breaching party in as good a position as performance of the duty would have done. Add consequential damages (those damages reasonably contemplated at the time of contracting), add incidental damages (costs of obtaining a substituted performance), and subtract damages that could have been mitigated.

57. The use of equitable remedies (e.g., specific performance) requires that there is no adequate remedy at law.

58. Specific performance is allowed if the performance is unique. All land is unique. Personal services may be unique, but specific performance will not require the performance of personal services—it will only enjoin the services from being performed elsewhere at the agreed time.

59. A buyer of goods may cover (purchase a reasonable substitute for the goods without unreasonable delay) or sue for market price damages (the difference of the market price when the buyer learns of the breach and the contract price) for the seller’s failure to deliver the goods. A buyer cannot use both remedies and must elect which to pursue.

60. A seller may use a resale remedy (to sell the goods to a new buyer), market price damages (the difference between the contract price and the market price at the time and place of tender), or recover profit that would have been made on this sale if the seller is a "lost volume" seller.

61. Oral evidence in contract law is called "parol," to be distinguished from "parole," which is a release of a prisoner from confinement.

62. If the terms of a written contract are disputed, the prior oral or written negotiations or contemporaneous oral negotiations are not admissible under certain circumstances. To determine if the contract is the final written agreement, a merger or integration clause may be used. Without such a clause, the majority rule is to determine if the writing appears to be complete or whether additional terms might naturally have been made as a separate agreement by parties similarly situated.

63. Parol evidence cannot vary or contradict the writing. It is possible to explain an ambiguity or to use parol evidence to completely undermine the agreement (e.g., proving fraud or duress).

64. The writing is always subject to subsequent modification. Consequently, the parol evidence rule does not apply to subsequent oral negotiations that might vary the writing.

65. This means "back in the Bar Refresher Course" or "please pass this examination this time." I wanted all of them to become lawyers and members of their state bar associations.

© 2002 The Colorado Lawyer and Colorado Bar Association. All Rights Reserved. Material from The Colorado Lawyer provided via this World Wide Web server is protected by the copyright laws of the United States and may not be reproduced in any way or medium without permission. This material also is subject to the disclaimers at http://www.cobar.org/tcl/disclaimer.cfm?year=2002.


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