Chapter Eight Flashcards
Requirements contract
a contract in which one party agrees to buy all its requirements for a particular product from the other party
Output contract
a contract in which one party agrees to deliver its entire output of a particular product to the other party
Option contract
a contract in which the buyer gives the seller consideration to keep the offer open for a stated period of time
Merchant’s firm offer
an offer made by a merchants in a signed writing that assures the buyer the offer will remain open for a specific period of time
It does not require consideration to be binding
Mirror image rule
the requirement that the acceptance exactly mirror the offer or the acceptance will be viewed as a counteroffer
Quasi-contract
although no contract was formed, the courts will fashion an equitable remedy to avoid unjust enrichment
Consideration
anything of value; it must be present for a valid contract to exist, and each side must give consideration
Unconscionable contract
a contract formed between parties of very unequal bargaining power where the terms are so unfair as to “shock the conscience”
Promissory estoppel
occurs when the courts allow detrimental reliance to substitute for consideration
Voidable
a valid contract that can be set aside at the option of one of the parties if she or he signed it (has disability or minor)
Disaffirm
minor must return goods but does not have to fulfill terms of contract, even if goods are damaged
Necessaries
normally food, clothing, shelter, and medical treatment
Void contract
a contract that is invalid even if it is not repudiated by either party
Covenant not to compete
restrict the right of an individual to earn a living or decrease compensation
Adhesion contract
a contract formed where the weaker party has no realistic bargaining power
Typically a form contract is offered on a “take it or leave it” basis
Exculpatory clause
a provision that purports to waive liability
Rescission
the act of canceling the contract and returning the parties to the positions they were in prior to the contract having been formed
Warranty
a guarantee, made by the seller or implied by law, regarding the character, quality, or title of the goods being sold
Implied warranty of merchant-ability
an implied promise that the goods being sold will be usable for the purpose for which they were sold
Implied warranty of fitness
an implied promise that the goods being sold will satisfy a special purpose
Parole evidence rule
an evidentiary rule that a written contract cannot be modified or changed by prior verbal agreements
Substantial performance
although a breach of contract, performance of all the essential terms of the contract will entitle the breaching party to be the contractual price minus any damages caused by the breach
Material breach
such a grave failure to fulfill the contractual terms that the other party is relieved of all contractual obligations
Perfect tender rule
the requirement that the goods delivered exactly meet the contractual specifications
Novation
when a third party is substituted for one of the original parties
Accord and satisfaction
the agreement and then the performance of something different than originally promised
Assignment
the transfer by one of the original parties to the contract of part or all of his or her interest to a third party
Delegation
the transfer by one of the original parties to the contract of his or her obligations to a third party
Specific performance
when money damages are inadequate, a court may use this equitable remedy and order the breaching party to performs his or her contractual obligations
Mitigation of damages
the requirement that the non breaching party take reasonable steps to limit his or her damages
Cover
finding substitute goods
Consequential damages
indirect damages that must be foreseeable to be recovered
Liquidated damages
a contract provision that specifies what will happen in case of breach
Contract information
an equitable remedy that allows the courts to “rewrite” contract provisions
Uniform Commercial Code (UCC)
statutory provisions created by legal scholars
states would voluntarily incorporate provisions into their state statutes for uniform legal principles
all states adopt, states have options to change language
Elements of a contract
agreement oral or written enforced in court what promises we should keep and excuses we allow rule bound
Element of a binding contract
Offer
Acceptance
Consideration
Parts of the UCC
10 articles Article 1 - general provisions Article 2 - sale of goods Article 2A - leases Article 9 - secured transactions
Types of contract
Bilateral vs Unilateral Express vs Implied Formal vs Informal Executory vs Executed Valid vs Void Voidable or Unenforceable
Bilateral contract
one where a promise is exchanged for a promise
Unilateral contract
a promise is exchanged for an act
Express contracts
formed through words, either oral or written
Implied-in-fact contracts
formed through conduct
What can contracts be?
formal or informal
most contracts are classified as informal
Valid
most contracts are considered valid
have all essential elements needed for a binding agreement
Void
if a contract is for an illegal purpose
Executory
in the process of the contract, not finished
Executed
the process is finished, contract is complete
Unenforceable
procedural error
Merchant is defined as
- deals in the goods that are the subject of the contract or
- “holds” himself out as having knowledge or skill peculiar to the practice
- who employs someone who has the knowledge and skill
Examples of code provisions that differ when a merchant is involved include
Good faith Firm offer Additional terms Modification without new consideration Implied warranties
Clarifications
Contracts are not gifts
Consideration is one sided
Giver is free to take back without a consequence
Offer and Acceptance
mutual agreement for legal binding relationship
- The parties
- The subject matter of the contract
- The price
- The time for performance
Objective theory
outside observer could discern what was said, how the offeror acted and the circumstances
Statements of intent and preliminary negotiations
beginning the process negotiations
Terms definite
contract terms must be definite for remedy as well as evidence a bargain was struck
Termination of an offer
- Offer’s actions
- Offeree’s actions
- By operation of law (death or statute of limitations)
Option contract
Merchant firm offer
Offeree can reject
Changing terms
Acceptance
Accept Reject Counteroffer Sending notification of acceptance or performing act requested Quasi contract
Four parts of consideration
detriment to promise or benefit to promisor
problems with consideration
Unconscionable contract
Promissory estoppel
Detriment to promise or benefit to promisor
both parties much exchange something of value
Promise must be made with intent to induce action (Promissory Estoppel)
it must do so - the court must believe that would be unjust not to enforce promise
Defenses to valid contract
- Lack if contractual capacity (minors, intoxication, mental incompetence)
- Illegal contracts and those that violate public (covenants not to compete adhesion contract)
- Lack of genuineness of assent (fraud, mistake)
- Breach of warranty
- Lack of proper format
Rescinded
canceling contract and receiving punitive damages award
When do you need a written contract?
land contracts cannot be performed in one year collateral contracts promises (pre-nup) sale of goods
Termination of Contractual duties
- by performance
- by agreement
- when performance is impossible
- due to commercial practicability
Third party rights
Assignment
Delegation
Third party beneficiaries
Joan says to Jill, “For $25 I will buy your watch.” Jill replies, “OK.”
A bilateral, express contract has been formed.
Jake said to Sam, “I will pay you $25 if you mow my lawn tomorrow.” The next day Sam showed up at Jake’s house and began to mow his lawn. When he was almost done, Jake said, “Oh, sorry. I take back my offer.”
Traditional and modern view
Joe lived in a impoverished area of town. Because he did not have a car, his choice of appliance dealerships was limited. He went to the one closest to where he lives, “We Sell’um.” There he signed a contract to purchase a $300 refrigerator for 24 monthly installments of $50 each, for a total of $1200. Because Joe cannot read, he signed the contract without realizing what the total payments would be. After making 15 of the payments, Joe stopped his payments and the dealer sued him for the remainder. A court would be likely to say that
this is an example of an unconscionable contract and refuse to enforce the rest of the payments
A buyer purchased a shipment of cotton from a seller, the cotton to be shipped on the Peerless. Unknown to either party there were two ships named the Peerless, one to depart in October and one in December. The buyer was thinking of the ship destined to leave in October and the seller the one in December. Consequently, the seller did not ship the cotton until December. By that time, the buyer no longer needed the cotton.
This is a classic example of a bilateral mistake. Because both were mistaken, no contract was ever formed, and the buyer will not be obligated to pay for the cotton.
In situations that involve both sale of goods and the purchase of services, the courts will usually,
Try to determine which element predominates, the service or the sale of goods
John was brought unconscious to the emergency room. He was severely injured and the emergency room doctor began immediate treatment. Once John had recovered, he refused to pay the hospital bill saying that he had never agreed to the treatment.
Even though there was no contract, the court might treat this as a case of “quasi contract” and order John to pay for the services rendered to him.
Mary offered to sell his watch to Mitch for $150. Mitch said, “Great. I’ll take it, but I will only pay you $125 for it.”
Mitch’s response was a rejection and a counteroffer. For a valid contract to be formed, Mary must now accept Mitch’s offer.
