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Chapter 1 Introduction

1. Meaning of Contract
a. An agreement which the law will enforce 1. A contract must contain at least one promise (a commitment to do something in the future) 2. Written vs. Oral: an agreement can be binding in most circumstances even if oral (exception is the Statute of Frauds) 3.Contract vs. Quasi-Contract: Quasi-contract is not a contract, but is a term used to denote a recovery imposed by law where justice so requires even though the parties didnt make an agreement o Ex: physician who treats injured person on sidewalk may be able to recover

2. Offer and Acceptance


a. First major requirement is mutual assent b. Mutual Assent: must both intend to contract, and they must agree on at least the main terms of their deal c. Objective Theory: in determining the parties have reached mutual assent, what matter isnt what each party subjectively intended. Measured by what a reasonable person in the position of the other party would have thought the first party intended d. Offer and Acceptance 1.Offer: statement or act that creates power of acceptance; indicating she is willing to be immediately bound by other persons acceptance, without further negotiation 2.Acceptance: statement or act that indicates the offerees immediate intent to enter into a deal. Contract is formed as soon as acceptance occurs e. Duration of Power of Acceptance: where on offer ends 1.Offer is rejected by offeree 2.Counter offer by offeree 3.Offeror revokes offer 4. Lapses 5.Offeror or offeree dies or becomes incapacitated

I.Intent to Contract
A. Need mutual assent and objective theory B. Agreement required only as to major terms i. Requirement of mutual assent does not mean the parties must agree on all terms 1. Must only agree on major or essential terms 2. Parties must intend to have a contract C. Objective Theory: determined from manifestations made by each of the parties, rather than subjective intention

i. Test for Intent: what a reasonable person in the position of the other party would conclude his objective manifestation of intent meant 1. Secret Intent: secret intentions are irrelevant in determining whether a contract exists and the terms D. Contract made in jest: even if one party makes an offer in jest, and the other party reasonably believes she is serious, and seriously accepts the offer, the contract is binding

II.

Offer and Acceptance

A. Restatements of Offer: the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude the bargain i. Unilateral Contracts: propose an exchange of the offerors promise for the offerees act 1. a contract in which only one party promises to do something, and the other aprty is free to act or not as she wishes, is a unilateral contract ii. Bilateral Contracts: consists of an exchange of promises 1. Most contracts are bilateral iii. Distinction between bilateral and unilateral of whether offeror can revoke the offer once the offeree relies on the offer to his detriment B. Options: not only an offer to contract, but at the same time the offeror promises she will keep the offer open for a certain time

III.

Validity of Particular Kinds of Offers

A. Offer made in jest: an offer that the offeree knows or should know is made in jest is not a valid offer B. A party desiring to contract may make a statement which isnt an offer, but rather a solicitation of bids. Cannot be accepted; serves as a basis for preliminary negotiations C. Person who intend to contrat in the future will not usually be considered an offer D. Price Quotations distinguished from offers: i. Quote will only be an offer if it makes clear the quantity in question 1. Quotation of merely a per unit price , with no reference to the number of units, is not an offer E. Advertisement as offers: advertisements appearing in mass media are not offers to sell because they do not contain sufficient words of commitment to sell i. However, if the advertisement contains words expressing advertisers commitment to sell a particular number of units or to sell in a particular manner, there may be an offer F. Offers at Auction: by opening bidding on an item, an offer is not made. Instead, he solicits offers from the audience

i. But if it is made clear the goods to be auctioned will be sold without reserve, the auctioneer is deemed to have made an irrevocable offer to sell goods to the highest bidder G. Indefinite Offers: for a contract to be formed, the parties must reach mutual assent on all of the essential terms of an agreement: i. Parties ii. Subject matter iii. Time for performance iv. Price

IV. The Acceptance


A. An acceptance is the offerees manifestation of assent the terms of the offer B. An offer may only be accepted by a person in whom the offeror intended to create a power of acceptance C. Usually valid only if offeree know of the offer i. Reward: where a reward is offered for a particular act, a person who does the act without knowing about the reward cannot claim it D. An offeree can by her actions bind herself even though she is ignorant of certain terms E. Offeror can prescribe the method by which an offer may be accepted i. Mode of acceptance where not specified in offer: if not specified, acceptance can be given in any manner and by any medium reasonable in the circumstance ii. Acceptance of Unilateral Contract: if offer proposes the offeree accept by performing an act instead of making a promise. Such offer looks to a unilateral contract When an offer to a unilateral contract is made, it can only be accepted by full performance But if the offeree begins to perform, most courts treat the offer as temporarily irrevocable (option) In unilateral contract, if B performs the requested act and did not intend to make a contract, there will be no contract if Bs intentions are clear iii. Acceptance of Bilateral Contract Acceptance is usually in words but acceptance may also be in form of action if it is indicated to the offeror that this is what the offeree intended Notice of acceptance: generally, (few exceptions) for acceptance to be effective, offeree must attempt to communicate it to the offeror in a reasonably prompt manner Whether offer invites either promise of performance: if it unclear whether it is bilateral or unilateral, offer is interpreted as inviting the offeree to accept either by promising to perform or rendering the performance a. Shipment of Goods: an order or offer to buy goods for prompt shipment shall be construed as inviting acceptance by promise or prompy shipment of goods UCC 2206(1)(b) Acceptance by Silence: common law did not treat as acceptance; modern view recognizes that silence may sometimes manifest an attempt to accept

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a. Restatement: recognizes silence as mode of acceptance in several instances: i. Where offeror has given offeree reason to understand that silence will constitute acceptance ii. Acceptance of Services: offeree who silently receives benefit of services (not goods) will be held to have accepted a contract for them if she (1) had a reasonable opportunity to reject them and (2) knew or should have known the provider of services expected to be compensated for them iii. Prior conduct: prior course of dealing of the parties may make it reasonable that the offerees silence be construed as consent

V.

Acceptance Varying From Offer

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A. General Problem: terms of acceptance sometimes diverge either by conflicting terms or additional terms. Contract does exist. B. Common Law: Mirror-Image Rule i. Last Shot opportunity: advantage to party who sent last written proposal Counter offer would be deemed accepted if shipment of goods followed payment C. UCC attempts to prevent a party from slipping out of contract D. BATTLE OF THE FORMS i. Most offers come on pre-printed forms Purchase Order: buyers purchase order form is filed with fine print favoring buyer Ackowledgment: sellers order department typically responds with an acknowledgment form containing fine print that favor seller Performance: goods are shipped and dispute erupts before or after buyer has paid for them and it is discovered the form are not in complete agreement ii. Role of 2-207: (1)determine whether a contract has been formed by exchange of documents and (2) if a contract has been formed, determine what the terms of the contract are iii. 2-207 Text A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. The additional terms are to be construed as proposals for addition to the contract. Between 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 already been given or is given within a reasonable time after notice of them is received. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.

In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. iv. Summary: 2-207 makes two major changes to common law In 2-207 (1), that a document can constitute an acceptance even though it states terms additional to or different from those offered or agreed upon 20297 (2), between merchants, additional terms on acceptance can be part of the contract if offeror remains silent a. Thus modifies that contract cannot be accepted by silence At least one party not merchant: if at least one party isnt a merchant, the only way the additional terms can become part of the contract is if the offeror explicitly assents to it Both parties merchants: if both are merchants, additional terms automatically become part of the contract unless one of the three exception is 2-207(2) are there a. Wont become part of it if offeror affirmatively indicats that he does not want it to b. Cannot materially alter the contract i. Disclaimer of warranty: a disclaimer of warranty will almost always be considered a material alteration ii. Arbitration clause: courts are split Different (Conflicting) Terms a. Two approaches i. Knockout Rule: conflicting clauses knock each other out so that neither enters the contract. Instead, a UCC gap filler provision is used if one is relevant; otherwise, common law controls ii. Alternative approach: clause proposed in second form (acceptance) fails to have any effect. Therefore, clause appearing in the offer enters contract b. STUDY ON CALI

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VI.

Duration of the Power of Acceptance

A. When there is doubt as to whether the acceptane is timely pinpoint the moment at which the purported acceptance became effective, and then determine whether the power of acceptance was in effect at that moment B. An offer gives to the offeree a continuing power of acceptance until this power has been terminated C. Four ways an offerees power of acceptance may be terminated in revocable offers i. Rejection or counter offer by offeree ii. Lapse of time iii. Revocation by offeror iv. Death or incapacity of either D. Offer terminated by offerees rejection i. If offeree rejects, her power to accept is terminated unless:

1. Offeree indicates the offer still stands in spite of the rejection or 2. Offeree states that lthough she does not now intend to accept the offer, she wishes to consider it further E. Counter Offer F. Lapse of Time i. If offer does not set a time limit, power of acceptance terminates at the end of a reasonable time period 1. Reasonable time period is a question of fact 2. Face-to-face or telephone must happen during conversation unless stated otherwise 3. Letter or telegram: measured from the time the offer is received, not the time it is sent G. Revocation: Except in an option contract, the offeror is free to revoke his offer at any time before acceptance i. Effective upon receipt: a revocation does not become effective until it is received by the offeree ii. If the revocation is lost through misdelivery, the recovation never becomes effective iii. Offerree is deemed to have received the revocation when it comes into his own possession, the possession of someone authorized to receive it for him, or when put into his mailbox iv. If an offeror behaves in a way inconsistent with an intention to enter a contract, and the offeree learns indirectly that the offeror has taken such action, there is revocation v. If the offeree does not learn of the inconsistent act, his power of acceptance is not revoked vi. Newspaper advertisement of other general public notice: may be revoked by similar publication or general notice. Will be effective even if one of the potential offerees does not learn about it and acts in reliance on the offer H. Death or Incapacity: if either dies, or loses legal capacity to enter contract, power to accept is terminated even if offeree does not learn of offerors death or incapacity I. Exception to general rule of revocation i. Option Contract: counter offer doesnt terminate power of acceptance ii. Firm Offer under UCC: offer by a merchant to buy or sell goods is irrevocable if the offer : is a signed writing or gives explicit assurance that the offer will be held open 1. Must be for a reasonable time unless time is stated 2. Cannot be made irrevocable for more than 3 months iii. Part performance may render offer temporarily irrevocable J. Actions in reliance upon an offer may render that offer temporaily irrevocable i. Offer is unilateral, and offeree begins to perform 1. Beginning of performance creates option contract 2. Must be actual performance, not preliminary preparations that are not explicitly called for by the offer ii. Not clear if offer is unilateral or bilateral, and offeree begins to perform

iii. Offeree makes preparations prior to the acceptance iv. OFFER is not irrevocable if the offer itself makes clear that a right of revocation is reserved to the offeror v. Common law: offeror could revoke an offer for a unilateral contract any time up until completion of the requested performance vi. Once the offeree begins to perform, he has accepted the contract, and is bound to complete performance vii. Beginning of performance operates as acceptance only if the offeror is notified of the acceptance within a reasonable time viii. Restatement 87 (2): an offer which the offeror should reasonably expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice 1. Offer is irrevocable only to the extent necessary to avoid injustice 2. Apply to preparations made prior to acceptance by promise and performance 3. Most often used in the case of offers by subcontractors to general contractors: where a subcontractor supplies a bid to a general contractor who then relies upon it in figuring his own over-all bid the subcontractors bid is usually held irrevocable VII. When Acceptance Becomes Effective A. Acceptance is effective upon proper dispatch (mailbox rule) B. Restatement 63: an acceptance made in a manner any be a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror i. Applies only to acceptances by promise, not by performance: the mailbox rule applies only to acceptances by promise, not acceptance by performance ii. Mailbox rule also binds the offeree. Once the offeree has placed his acceptance in the mail, he cannot thereafter change his mind and send a rejection, even if the rejection is received before the acceptance is received iii. Even if unreasonable means of communicating the acceptance is used, or acceptance is misaddressed, it is still effective when dispatched if it is received within the time in which a properly dispatched acceptance would normally have arrived C. A rejection does not terminate the offerees power of acceptance until it is received, but any acceptance dispatched by the offeree after she has dispatched the rejection is not effective unless the acceptance is received by the offeror before he receives the rejection D. The acceptance of an option contract is effective not upon dispatch, but upon receipt by the offeror E. Revocation is not effective until it is received by the other party

VIII. Indefiniteness
A. No agreement of terms of agreement are unduly indefinite B. A proposed agreement whose terms are too uncertain to form a contract is said to be void for indefiniteness C. Restatement: terms of a contract are sufficiently definite if they provide a basis for determining the existence of a breach and for giving an appropriate remedy D. As long as agreement allows court to determine whether one party has breached it, and award some kind of reasonable damages to wronged party, contract isnt void for indefiniteness E. For essential elements an agreement must cover in order for it to be enforceable i. Parties to the contract ii. Subject matter iii. Time for performance iv. Price 1. A court may supply a missing term when: both parties manifest and intent that a reasonable term will apply, parties have left certain terms to be determined by future mutual agreement, indefiniteness may later become definite through action of one of the parties 2. Parties may form a contract with an essential term unfilled, intending to agree upon that term in the future v. UCC 2-311(1): as long as parties intend to make a contract, and there is a reasonsably certain basis for giving an appropriate remedy the contract is not invalid by the fact that it leaves particulars of performance to be specified by one of the parties

Chapter 3 - Consideration
Consideration is required: if either party to a contract has not given consideration, the agreement is unenforceable unless it falls under one of the exceptions Two requirement for consideration: promisee gave up something of value or circumscribed her liberty (legal detriment) and promisor made his promise in exchange for the promisees of value or circumscribing liberty

I.

Introduction Consideration is not required in all contracts Look for consideration first: first determine whether contract is supported by consideration B. Functions Provide objective evidence that the parties intended to make a binding agreement

Make parties act more carefully to not make thoughtless or bad bargains C. Definition: 1. Promisee must suffer a legal detriment 2. Detriment must induce promise: part or promisors motive in making promise must be desire to exchange his promise for promisees detriment 3. Promise must induce detriment: promisee must suffer his detriment at least in part because of the promise Gist of definition: the promise gives up something of value, or circumscribes his liberty and the promisor makes his promise as part of a bargain II. The Bargain Element Gift Promises A. Generally: for a promise to be supported by consideration, the promisees detriment must have been bargained for by the promisor Purpose of bargain requirement is to prevent the enforcement of promises that are in reality promises to make gifts B. Gifts lack consideration because no detriment is suffered by the promise and it isnt part of a bargain Bargains vs. conditional gifts: promisee must meet certain conditions in order too receive agift, but the meeting of these conditions is not bargained for by the promisor Test for distinguishing bargains from pre-conditions: as whether the occurrence of the condition is a benefit to the promisor Question of fact A bargain may be present even though the promisor does not receive an economic benefit from the transaction

III.

The Bargain Element Past Consideration

A. Past Consideration not sufficient: bargain is missing (and therefore no consideration) where the promise is made in return for detriment previously suffered by the promise. Where the detriment is suffered before the promise is made, obviously it wasnt bargained for Past consideration is not valid consideration (not really consideration at all) A promise to pay for services received in the past is usually held not to be supported by consideration IV. The Detriment Element Generally A. Not only must there be bargain in consideration, but the promisee must undergo a detriment B. Detriment: promise must do something he does not have to do, or refrain from doing something that he had a right to do Non-economic detriments: detriment may be sufficient to constitute a consideration even though it doesnt involve an economic disadvantage and even if it aids him spiritually, morally, physically, etc As long as the party as circumscribed his freedom of action, he has incurred detriment, regardless if there is harm to him

C. Consideration may be either promise or performance: the detriment given or suffered by the promise may be either a promise or a performance ex page 98 Inadequacy of consideration: fraud, duress, unconscionability, etc.

V.

The Pre-existing Duty Rule


A. If a party promises to do what she is already legally obligated to do, or forbears from doing something which she is not legally entitled to do, she has not incurred the kind of detriment necessary for her performance or forbearance to constitute consideration

VI.

Mutuality of Consideration
A. Each party must furnish consideration to the other B. Consideration in bilateral contracts: the problem of mutuality only arises with respect to bilateral contracts

VII.

Illusory, Alternative, and Implied Promises


A. Two situations where plaintiffs promise may fail to constitute consideration because the plaintiff is not really bound? Illusory promises: appear to promise a performance that would constitute consideration, but do not Alternative Promised Performances: plaintiff gets her choice of which performance to render, and one of the alternatives would not be consideration B. Illusory Promises: statement that appears to, but does not actually commit the promisor to anything Common type of illusory promise is when promisor reserves right to change his mind If one party has right to terminate only after he has done an act which by itself would constitute consideration, his promise is not illusory, and constitutes consideration C. Alternative Promises: promise which reserves to the promisor several alternative performances is generally consideration only if each of the alternative performances would have been consideration of it had been bargained for alone D. Wood v. Lucy, Lady Duff pg. 114

VIII.

Requirements and Output Contracts

A. Earlier approach held option contracts were invalid for lack of consideration B. Today considered valid: used today it if can be proved the buyer has implicitly promised to use his best efforts to sell the goods C. 2-306 comment 2: output contracts do not lack mutuality of obligation since, the party who will determine quantity is required to operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the trade so his output of requirements will approximate a reasonably foreseeable figure D. When a change in market conditions makes it highly advantageous for a requirements buyer to increase his requirements sharply, UCC probably does not permit such abuse of the contract IX. Miscellaneous Consideration Problems

A. Existence of a condition will usually not prevent the conditional promise from constituting consideration B. If the condition is outside the promisors control. That condition will almost never prevent his promise from being consideration C. A conditional promise is not consideration if the promisor knows at the time the promise is made that the condition cannot occur

Chapter 4 - Promises Binding Without Consideration


1. Introduction a. Certain contracts are enforceable without consideration 2. Option Contracts

A. Promissory Estoppel a. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise b. Essence of promissory estoppel: promisor may be bound, even without consideration, if the promisee relies upon the promise to her detriment, and promisor should have foreseen this reliance i. Originally applied chiefly to gratuitous promises which were relied on by the promise, and then retracted by promisor ii. Promisee must show that he would not have taken the act except for the promise (cause and effect relationship between the act) iii. Promisees reliance must have been reasonably foreseeable to the promisor that the promise would rely in the particular way that he did in fact rely c. Promissory estoppel often applied to enforce promises to make gifts that nduce detrimental reliance

Statute of Frauds
B. Every state provides that certain types of contracts must be in writing to be enforceable a. Five main types 1. Suretyship agreement 2. Marriage 3. Land contract 4. One-year provision

5. Sale of goods b. Louisiana is an exception c. Nine types of contract which fall within Statute of Frauds and must be in writing 1. Agreement that cannot be completed within one year from the making of the agreement 2. Transfer of real estate, other than a lease 3. Sale of goods of $500 or more 4. Agreement for lease of goods providing for rent of $1000 or more 5. Suretyship 6. C. Suretyship Agreements a. Promise to pay debt or default of another is within Statute of Frauds (A) Statutory Texts Many statutes provide that an agreement of certain types, otherwise enforceable, is not to be enforced if it isnt represented by a signed writing Nine classes of Agreements that, if entirely oral, are made unenforceable by statutes enacted in all or almost all states 1. An agreement for any performance that cannot be completed, on one side or the other, within one year from the making of the agreement 2. Agreement for the transfer of an interest in real estate, other than the grant of a lease, and for the grant of a real-estate lease for a period of 1+ years 3. Agreements for sale of goods for $500 or more 4. Agreement for lease of goods providing for rent of $1,000 or more 5. Agreement by person or firm to be surety for the debt, or other obligation, of another a. Ex: if you give my brother a few weeks more to pay his bill, I will see that he pays it 6. Agreement by which personal property is to stand as security for an obligation 7. Agreement the performance for which is not to be completed before the end of a lifetime 8. Agreement to pay a commission for the services of a real-estate 9. Agreement by which a person or firm undertakes to extend credit to another Entries above describe agreement that are prima facie unenforceable

Rule of Effrontery: by stating that a promise within the Statute of Frauds is void, the law authorizes a promisor both to admit the existence of a promise and to defend successfully against its enforcement on the grounds of the Statute UCC 2-201 (3)(b) (B) Explaining the Legislative Choices The entire Statute was intended to prevent fraud in the proving of certain legal transactions particularly susceptible to deception, mistake and perjury, and with regard specifically (that requirement), the design of the statute was, not to trust to the memory of witnesses for a longer time than one year Restatement 139

(D)Ethical Practices and Statutes of Frauds Section 2 Writing, Signing, and Otherwise Recording and Authenticating The Content of a Document 1. What constitutes a writing sufficient to satisfy the statutes of fraduds? UCC 1-201(b)(43) - writing definition : includes printing, typewriting, or any other intentional reduction to tangible form. 2. What terms of the contract must appear in the writing? Restatement 131 , the essential terms of unperformed promises must be stated What is essential depends on the agreement and its context and also on subsequent conduct of the parties, including the dispute which arises and the remedy sought Description of the transaction or promise (including the price to be paid) and identification of the parties are essential terms

Signing A documented agreement signed long after the parties agreed on its terms will satisfy a statute of frauds Considerable lenience is shown in deciding what counts as a signature Complete signature isnt necessary. The question is always whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing

Electronic Documentation

Uniform Electronic Transactions Act: major US source of validation for electronic agreements not represented in signed writings o Enacted in all but four states o Applied to contracts for the sale of goods that are governed by Article 2 and to most contracts governed by the common law o if a law requires a record to be in writing, an electronic record satisfies the law (same for signatures)

Section 3. Statutory Scope An agreement that cannot be performed within the year following its making us unenforceable unless circumstances persuade a court otherwise o One circumstance that persuades a court is, by the time of litigation, the agreement has been performed in full on the part of the claimant Note: Statutory Overlap: an agreement is unenforceable if it is wanting in the documentation required for any class of contracts in which it lies Restatement (Second) of Contracts 110. CLASSES OF CONTRACTS COVERED (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception: (a) a contract of an executor or administrator to answer for a duty of his decedent (the executoradministrator provision); (b) a contract to answer for the duty of another (the suretyship provision); (c) a contract made upon consideration of marriage (the marriage provision); (d) a contract for the sale of an interest in land (the land contract provision); (e) a contract that is not to be performed within one year from the making thereof (the one-year provision). (2) The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code: (a) a contract for the sale of goods for the price of $500 or more (Uniform Commercial Code 2201);

(b) a contract for the sale of securities (Uniform Commercial Code 8-319); (c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy (Uniform Commercial Code 1-206). (3) In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party. (4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest. (5) In many states other classes of contracts are subject to a requirement of a writing. Flow Chart 1. Is the oral agreement within the Statute of Frauds? If NO, it is enforceable If YES, 2. Is the agreement evidenced by a writing? If YES, it is enforceable If NO, 3. Is there an exception? If YES, it is enforceable If NO, it is not enforceable