Class 3-4: Contracts & Sales Flashcards
1
Q
“____” is a legally enforceable promise.
A
A contract
2
Q
The following are reasons why people... ● Fear of legal repercussions ● Private sanctions – boycotts ● Personal credibility ● Character – honesty as a virtue
A
Keep their promises
3
Q
The two parties to a contract are…
A
Promisor
Promisee
4
Q
Name the type of Contract:
Agreement manifested by words.
A
Express Contract
5
Q
Name the type of Contract:
Agreement manifested by conduct.
A
Implied in Fact Contract.
6
Q
Name the type of Contract:
Not actually a contract, but an obligation imposed by a court, out of equity, despite absence of a promise, in order to avoid injustice..
A
Implied in Law.
7
Q
Most types of “______” contracts can be written, oral or based on certain types of conduct.
A
enforceable
8
Q
A promise exchanged for a promise represents a “______” contract.
Ex:
“Kim, I’d like to buy that sweet bike of yours for $40. Sounds good,
John; I’ll bring it to school tomorrow. Great, I’ll bring the money.”
A
Bilateral
9
Q
A promise exchanged for an act represents a “______” contract.
Ex:
“When you wash my dog, I’ll pay you $50.”
A
Unilateral
10
Q
The following 5 things are necessary for an “____” contract. (KLAW FLASH CARD)
● Offer ● Acceptance ● Consideration ● Capacity ● Legality
A
Enforceable
11
Q
The following are generally not considered “____”.
● Letters of intent to negotiate
● Invitations to Bid & RFPs
● Advertisements, catalogs and mass mailings
A
Offers
12
Q
The following are requirements of an “____”.
(1) Offeror’s serious intent to be bound (can’t be an obvious joke).
(2) Reasonably definite terms (Identities, object/ subject matter including quantity b/c court can fill in market price, consideration, time, delivery, etc.)
(3) Offer must be communicated to offeree.
A
Offer
13
Q
“____” are only valid once communicated and “received” by offered or her agent.
A
Offers
14
Q
If there’s no stated offer duration, offers are presumed to be open for a “____” period of time.
A
reasonable
15
Q
In telephone or face-to-face dealings, offers are presumed to end when?
A
Once the conversation ends, unless stated otherwise.
16
Q
Usually, offer may be revoked by offeror any time prior to “____”.
A
acceptance.
● Except: signed “firm offers” by “Merchants” (person who deals in goods involved in K)
● Except: when an “option contract” is made by paying consideration to leave offer open
17
Q
Generally, revocation is effective upon actual receipt by offeree or agent. The best way to revoke is usually to tell them…
A
“Hey, check yo’ email bro.”, then, “I hereby revoke my previous offer dated July 12…”
But, in case of a unilateral K, revocation must occur prior to the start of performance.
18
Q
When the offeree proposes new/different terms (a counteroffer) to the offeror…
A
The original offer is rejected.
This exemplifies the common law “mirror image rule” in which an acceptance must exactly mirror the terms of the offer.
19
Q
When receiving a job offer, be careful NOT to accidentally “_____”.
A
reject the offer!
RESPOND VERY CAREFULLY. An inquiry about an offer does not ordinarily constitute a rejection.
20
Q
An offer will terminate, by operation of law if, PRIOR to “____” :
●The time for acceptance has expired. ●Subject matter of the contract has been
destroyed.
●One of the parties dies or becomes incompetent.
A
acceptance.
21
Q
The following scenario describes characteristics of an…
●A voluntary act (in words or conduct) by offeree to show assent to the terms of the offer.
●Must be unequivocal.
●Must be timely communicated to offeror.
●Silence usually doesn’t qualify, unless an action demonstrates…
A
acceptance.
22
Q
“____” is the value given in return for a promise.
A
Consideration
23
Q
“____” must consist of legally sufficient value.
A
Consideration
To be adequate, consideration must consist of a legal detriment: May be promise to do (or refrain from doing) something you were not otherwise required to do.
24
Q
The following encompass
“_______” cases.
● There’s no consideration if you’re already required to do a particular thing
● If you’re already obligated to do work in exchange for payment, you generally cannot enforce another agreement to do the same thing for more money.
A
Pre-existing Duty cases
(e.g., sheriff cant collect bounty)
Exception: If there are unforeseen circumstances in construction, courts will sometimes enforce a landowner’s promise to pay more money, even though it’s the same work as was originally contracted.
25
The following encompass
"_______" cases.
Promises made in return for actions or events that have already occurred are unenforceable; they’re gifts
Past Consideration cases
26
"____" is a legal doctrine providing that a person who has reasonably and substantially relied on a promise of another to his detriment may be able to obtain recovery.
(KLAW FLASH CARD)
Promissory Estoppel
Also known as detrimental reliance.
Used when there is no contract, usually due to lack of consideration.
Elements:
● Clear and definite promise
● Promisor should have expect that promisee would rely on it.
● Promisee did, in fact, rely.
● Promisee’s reliance was reasonable.
● Promisee’s reliance resulted in substantial detriment.
● Enforcement of promise is necessary to avoid injustice.
27
"_____" is an equitable claim in which the petitioner asks a court to order the respondent to disgorge and pay over benefits unfairly retained.
(KLAW FLASH CARD)
Unjust Enrichment
Elements:
● Benefits conferred by P upon D
● Appreciation of such benefits by D
● Unjust acceptance and retention of such benefits without the payment of value for them.
28
"____" contract - a valid contract that can be avoided at the option of one or both of the parties.
Voidable
● Ex: Contracts made by minors, incompetent persons, or intoxicated persons are voidable at the option of such persons. Such people may also choose to “ratify” the contract (and push forward).
29
"____" contract - A contract that produces no legal obligations on either party. Contracts made be void if they serve an illegal purpose or one party is adjudged to have lacked capacity to enter into a party.
Void
30
"____" contract - A contract that cannot be enforced because of legal defenses available by law
Unenforceable
Ex: some K’s must be in writing (see Statute of Frauds).
31
Contract Capacity concerns:
● Minors can enter into most contracts before that age, but...
Contract is voidable at the "option of the minor" (Issue for E-Contracts)
Age of majority in most states is 18.
32
Contract Capacity concerns:
Contracts entered into while (voluntarily) intoxicated are voidable, if the person...
"lacked mental capacity" to appreciate the legal consequences of entering into the contract.
33
Contract Capacity concerns (fill in the blank):
If a court has found a person "____" and appointed a guardian for them, the K is void because only the guardian can enter into contracts on their behalf.
If a court has not yet declared a person "____", the K may be voidable, if the person did not know she was entering into the K or did not appreciate the consequences. But, if she was competent at the time of formation, it’s valid.
incompetent
34
Illegal contracts are "_____", and thus illegality is a defense to enforcement of a contract.
Void
Examples:
● Contracts to commit a crime (void)
● Usurious loans (voided as to excess interest). The reason credit cards locate to states with high MAX rates.
● Gambling contracts (in most States)
35
The following is what type of defense to enforcement:
● Contracts in restraint of trade (e.g., price-fixing)
● Covenants not to compete that are unreasonable in length (~usually more than 1 year) or geography (e.g., worldwide or otherwise outside of promisee’s geographic range of business)
Contrary to Public Policy
36
The following is what type of defense to enforcement:
● Procedural: unfair surprise due to small print, legalese, contracts of adhesion that unreasonably favor the drafter.
● Substantive: oppressive, grossly imbalanced, overly harsh terms
Unconscionability (gross unfairness)
37
The following is what type of defense to enforcement:
● Basically, its an argument that there was no real meeting of the minds.
● If proven, it renders contract voidable at the option of the person who originally lacked voluntary consent.
Lack of voluntary consent
4 basic arguments:
●Fraudulent Misrepresentation (you lied to me)
● Undue influence (I’m feeble and was tricked)
● Mistake (I didn’t realize what we were agreeing to)
● Duress (you forced me)
38
What kind of mistake is the following?
If one of the parties is mistaken as to a material (important) fact, the contract is usually still enforceable, unless (1) the other party should have known that a mistake was made, (2) simple mathematical error, without gross negligence.
Unilateral Mistake of Fact
39
What kind of mistake is the following?
If there was a mutual misunderstanding concerning a basic assumption on which K was made, the K can be rescinded by either party.
Mutual Mistake of Fact
40
What kind of mistake is the following?
If one party mistakenly believes that an item is worth or less more than it really is, or is of a better or worse quality....tough luck buddy.
Mistake of Value
41
"____" - A knowingly false misrepresentation of material fact, with intent to deceive, that the other person relies upon, and which causes harm.
Ex: Jeweler says cubic zirconium is diamond.
Usually must be an affirmative statement of fact not just an omission, unless the seller prevents a buyer from learning about a material fact (hides damage).
Fraudulent misrepresentation
Note: it is also a tort.
42
"____" - When the party influenced did not actually act out of their free will.
- Arises when there exists a (1) special relationship (2) in which one party greatly influences another party (3) to the influencer’s benefit.
- Minors/Elderly vs. Guardians
- Doctor vs. Patient
Undue Influence
43
"____" refers to the use of threats, blackmail, or extortion to force a party to enter into an agreement.
● “If you don’t sign away your land to me, I’ll break your kneecaps”
● But not “If you don’t pay me for the damage to my truck, I’ll sue you!”
Duress
Serves as defense to enforcement and provides grounds for rescission.
Duress requires proof of threat to do something the threatening party has no right to do (e.g., usually something wrongful or illegal)
44
Statute of "____" - Some contracts must be in writing (at least electronic) and signed by the person against whom enforcement is sought in order to be valid and enforceable.
Statue of Frauds
Oral contracts not permitted for:
● Contracts involving interests in land
● Contracts that cannot be fully performed within one year from the day after they are formed.
● Contracts to answer for the debt of another person.
● Promises in consideration of marriage (e.g., prenup).
● Contracts for the sale of goods of $500 or more, except, e.g., if the payment has been made and accepted and the goods have been received and accepted
45
"____" - The transfer of contractual rights (e.g., the right of payment) from the a party (the assignor) to a third party (the assignee).
Assignment - it gives the assignee the right to demand performance from the counterparty to the contract.
Not acceptable if:
(1) Counterparty’s obligation is for personal services (I'll teach your kid).
(2) assignment will materially increase costs/risks to counterparty (Wholefoods, deliver to my friend in Tokyo).
(3) K expressly prohibits assignments (common in rental property leases).
46
"____" - The transfer of contractual duties from a contractual party to a third party.
Ex: “I know I agreed to paint your house, sir. But my buddy, Captain Sloppy, will do it instead.”
Delegation
- From the contractual party (delegator) to a third party (delegatee).
- No magic words necessary to delegate.
- Doesn’t relieve the delagator if the delegatee fails to perform.
47
Most "_____" are permitted and must be accepted by counter-party, except:
●When special trust has been placed in obligor
●When performance depends on special skills of obligor
●When resultant performance will vary materially from expectations under the contract
●When the the contract expressly prohibits "_____".
Delegations
48
"_____" third-party beneficiaries of a contract can sue the promisor directly for breach of contract.
Intended
49
"_____" third-party beneficiaries, who would receive an unintentional benefit if a party performed, cannot sue to enforce the contract . (They lack privity of contract)
Incidental
50
"____": Contract fully performed on both sides
Executed Contract
51
"____": One party has fully performed contract, but the other has not yet.
Executory Contract
52
Obligations may be “_____” by:
● Performance
● Tender (unconditional offer to performed by someone ready, willing and able)
Discharged
“If one party has performed or tendered, but the other refuses to perform, this is called “breach” of contract.
53
“____" - If one party has performed or tendered, but the other refuses to perform.
Breach of contract
54
If conditions are not satisfied, the party’s
obligations are "____".
The 3 types of Conditions are...
Discharged.
1. Conditions Precedent
- I’ll mow your lawn, if you first pick up your
dog’s “business.”
2. Conditions Subsequent
- I’ll buy the house, provided it appraises out
3. Conditions Concurrent
- Closing
55
Types of Performance:
"__1__" performance – performance exactly as agreed.
"__2__" performance –a party in good faith performs most of the terms.
1. Complete
2. Substantial
If substantial, since the performance is not perfect, the other party is entitled to “damages” – either (1) cost to bring into compliance, or (2) difference in value between contractual expectations and actual performance.
56
"_____" – nonperformance of contractual duty.
Breach of Contract
57
"____" breach:
- Occurs when performance is not, at least, substantial.
- Excuses the nonbreaching party from performance.
- Allows the nonbreaching party to sue for damages.
Material Breach
58
"____" breach:
- Nonperformance but it is not material.
- Does not excuse the nonbreaching party from performance, but sometimes allows the nonbreaching party to suspend performance until breach is “cured”.
- Allows the nonbreaching party to sue for damages.
Minor Breach
59
"____" - when a party refuses to carry out obligations before they are due.
Anticipatory Repudiation
Generally treated as material breach – allows the non- breacher to sue immediately, even if performance is not yet due.
60
The following are ways for a party to "____".
● Stating that he will breach the contract.
● Engaging in a voluntary affirmative act that renders him unable to perform the duty.
● Not providing assurance of due performance upon request when there exists reasonable grounds to believe that the obligor will not perform.
Repudiate
61
Repudiation can be "____" until the nonbreacher treats it as a “material breach”
retracted
62
If no time stated in Contract, then performance is due within a “____”.
reasonable item
Usually, a delay will not constitute material breach. But if contract says “time is of the essence,” then timing is a condition, and the failure to timely perform excuses the other party’s performance.
63
All contracts may be discharged by agreement of "____".
Both Parties
64
Discharge by "_____" –
● Parties must make a new valid contract, with a valid offer, acceptance and consideration.
● For fully executory contracts (i.e., where no one has performed yet):
● When one party has performed, however, rescission requires new and different consideration
Mutual Rescission
65
Discharge by "____" – both parties agree to substitute a third-party for one of the original parties
Novation
Requirements:
● Previously valid obligation
● Agreement by all old parties to a new contract
● Extinguishing old obligation (discharge of prior party)
● New valid contract, with consideration.
66
Discharge by "____" – Compromise after a genuine dispute over the obligations under an existing K. The "____" will substitute for the old K.
Settlement
Difference between Novation and Settlement: Same parties, no 3rd party.
67
Discharge by "____" –
● Material Alteration of contract by one party without consent (e.g., unilateral change in price/quantity)
● Statute of limitations
● Bankruptcy
Operation of Law
68
"_____" of Performance
When a supervening event makes performance an “objective impossibility” (even including delegation).
NOTE: The event must not have been the fault of one of the parties, forseeable, or an assumed risk.
NOTE: If the “impossibility” is only temporary, the obligations are only suspended, not discharged.
Impossibility
- One of the parties to a personal K dies or becomes incapacitated (e.g., YoYo Ma contracts to give cello lessons but dies).
- Specific subject matter of the K is destroyed
- Change in law renders performance illegal.
69
"____" - If a supervening event makes it impossible to achieve the purpose that BOTH parties had in mind, then the contractual duties of the parties may be discharged.
Frustration of Purpose
- Usually involves an event that substantially decreases the value of what a party receives, which was a basic assumption of the K.
- Must not have been reasonably forseeeable, must not be at fault, and K cannot expressly prohibit such excuses.
70
"____" - When a supervening event makes performance much more difficult or expensive than originally contemplated, but not technically impossible.
Commercial Impracticability
If so, the courts may discharge performance, if the obligor proves:
1) event makes performance much more difficult or expensive.
2) party seeking relief was not at fault in causing the event.
3) non-occurrence of the event was a basic assumption upon which the contract was made.
4) the party seeking relief must not have assumed the risk of the event occurring.
71
A legal "____" is the relief that an innocent party seeks when other party has breached.
Remedy
72
The following are examples of "____".
● Damages.
● Compensatory, incidental, consequential, punitive, nominal.
● Rescission (un-do agreement).
● Restitution (pay for benefits taken).
● Specific Performance (get what you asked for).
● Reformation (court changes names/terms).
Remedies
73
"____" - Designed to compensate nonbreaching party for benefit of what he would have received if the K had not been breached, minus any amount he would have spent in performance of the contract.
(Difference between value of what you bargained-for and value of what you received, minus the loss you avoided).
Compensatory Damages
(expectation damages)
Must be actually sustained and proven with certainty:
● Look at contract price
● Calculate Loss in Value
● Calculate Lost profits
Note: Must also add in incidental damages, such as the costs incurred looking for the replacement.
74
With Sale of Goods/Services, the following amounts to "____" damages:
(market price for replacement) minus (contract price).
Compensatory Damages
(expectation damages)
Note: Must also add in incidental damages, such as the costs incurred looking for the replacement.
75
"_______" - Damages flowing from a party’s breach arising from unique circumstances of non-breaching party.
Ex: A agrees to supply B with coal, so that B can sell power to C. Without the coal from A, B loses the ability to sell power to C for profit, and B may end up breaching his contract with C.
Consequential Damages
- To recover, must be (1) foreseeable and (2) reasonably certain. A must know of B’s situation.
- Often, these are expressly limited in a contract.
76
"____" - Costs associated with the breach (e.g., finding a replacement, transportation of rejected goods)
Incidental Damages
77
"____" - Compensate injured party for losses resulting from reasonable reliance on a promise, which is usually not enforceable.
Reliance Damages
- Usually only awarded when expectation damages cannot be proven or aren’t available.
- Can’t exceed expectation damages.
78
Punitive Damages are never awarded with respect to contracts because contract damages are all about compensation, not "____".
punishment
79
"_______" - In most cases, the common law imposes a duty to use reasonable means to try to mitigate your damages.
Ex: landlord must try to find new tenant.
Ex: wrongly terminated employee must try to find new job, but only needs to take it if its similar.
Obligation to Mitigate Damages
- This reduces the amount of losses that the
nonbreaching party sustains, and thus the amount that the breaching party owes in compensation.
Final amount calculated as difference between value of what you bargained-for and value of what you received, minus the loss you avoided.
80
"____" - An equitable remedy whereby the Court orders one party to return things or money received by one party.
Restitution
Usually requested in cases where it is alleged that it would be unjust to allow a party to keep the item (e.g., unjust enrichment claim). If the property conveyed has already been consumed, a monetary equivalent must be paid back.
81
A "____" damages provision in a K that specifies the amount that must be paid in the event a future breach occurs. However, the provision cannot be a “penalty” to punish a person in the event of a breach.
Ex: “if you don’t move out of the house when we agreed, you must pay me $250 per day.”
Liquidated Damages
Hence, to be enforceable:
● Must have been difficult at the time of contract to estimate the losses that would occur in the event of breach.
● Must be reasonable estimate, not excessive.
82
"____" is an equitable remedy asking a court to undo or terminate a contract, and return the parties to their original positions before the K.
Rescission
Available in the event of: Fraud, Duress, Undue Influence, Mistake, Lack of Capacity, Statute (sometimes).
83
"____" - An equitable remedy that requires a party to perform the act they promised (instead of just paying damages).
Usually only awarded in cases where monetary damages are insufficient or there is something particularly unique about the item contracted.
Specific Performance
Specific performance is usually NOT granted in suits for breach of a personal services contract because court doesn’t want to FORCE someone to perform services, because they may the do it poorly and it seems like slavery.
84
"____" - An equitable remedy in which the court effectively rewrites terms of the contract, because the parties did a poor job of drafting the contract or made some clerical mistake.
Reformation
It is generally used to conform the written contract to the parties actual intentions.
Often used in conjunction with other remedies, e.g., reform the contract to get the right name and then sue for breach of contract.
85
The law hates double-dipping. Thus, although a nonbreaching party may have many available remedies, she can’t recover twice. What does the court do?
Courts will sometimes require the person
| to choose which remedy to pursue.
86
When one party breaches a contract (usually a minor breach), the counterparty may choose to seek damages or “____” the breach.
Waive
A waiver has the effect of saying “nevermind, it’s cool, let’s keep going”. Once waived, that breach is waived forever.
87
A previous waive does not waive different, future breaches, unless a reasonable person would conclude that the nonbreaching party’s continued acceptance of the breaching party’s defective performance means that the defect was acceptable. Thus, if waiving, it is important to...
Put the other party on notice that full performance in the future is still required.
88
The following are ways that "____" can breach contracts:
● Failure to pay
● Wrongfully rejecting conforming goods
● Revoking acceptance of goods
● Repudiating the contract
Buyers
If goods are still in possession of Seller, Seller can:
● Cancel the contract.
● Withhold delivery.
● Resell the goods and seek damages for any difference in price received, plus incidentals.
● Sue for lost profits (if seller is a “lost volume seller” who would not be whole simply by reselling the goods).
If goods in possession of Buyer, Seller can:
● Sue for the purchase price
89
If "__1__" refuses to deliver goods after payment has been tendered, "__2__" can:
● Cancel the contract.
● Sue for damages.
● Sue for specific performance (if goods are unique).
● Obtain “cover” (i.e., buy similar goods from someone else and recover the difference between contract price and price actually paid).
1. Seller
2. Buyer
If identified goods have already been paid for, Seller can sue to “replevy the goods"
90
"____" are used often for sales of goods
| and services, as well as licenses.
Electronic Contracts
91
"_____" Agreements - UCC recognizes that a valid and enforceable contract may be formed by clicking “I Agree”
Click-Wrap Agreements
92
"_____" Agreements - Terms are expressed inside a box in which goods are packaged. Generally acceptance occurs by keeping what’s in the box, except courts may refuse to enforce certain provisions in such after-the-purchase agreements
Shrink Wrap Agreements
93
"_____" Agreements - (Agreements merely located on a website but not requiring an “I Agree” click) are commonly unenforceable.
Browse-wrap Agreements
94
Most states have E-Signature laws that recognize the legal validity of an electronic signature.
To standardize these laws, the Uniform Electronic Transactions Act (____) was proposed and adopted by almost all states.
UETA.
Likewise, the federal government passed the Electronic Signatures in Global and National Commerce Act (E- SIGN Act), which provides for the validity of electronic signatures.
95
The following are all problems with "____" Contracts:
● Legal Capacity: It’s difficult to verify ages of people online.
● Unconscionability: It’s easy to argue that an electronic contract with lots of terms in legalese are contracts of adhesion that are procedurally unconscionable.
● PEOPLE DON’T READ THEM! Best practices include requiring a full scroll to the bottom of the contract before the “I Agree” button becomes active,
Electronic Contracts
96
An “____" or “hold harmless” clause is a provision in a contract pursuant to which one party (or both) agrees to compensate the other (or each other) for certain harms, liabilities or losses arising out of the contract.
indemnity, hold harmless
97
Contracts sometimes include "____" clauses which are provisions stating that no damages can be recovered for certain types of breaches or only certain types of damages may be recovered, but not others.
Limitation of Liability
Ex: The only remedy for breach is replacement, repair or refund.
Ex: No consequential damages.
98
"____" are statements of fact made to induce someone to act (i.e., enter into a contract)
Representations
If they are part of the contract and can be proven material, they can provide a basis for claiming breach if not substantially true.
99
"____" are promises, assurances or guarantees that something in a contract is guaranteed by one of the contracting parties.
Warranties
Typically, they are stated fact about the condition, suitability or value of the good or service being sold.
100
An "____" clause is a contractual provision stating that the contract represents the “complete and final agreement and supersedes all informal understanding and oral agreements.”
Integration
It helps prevent another party from saying “Yeah, I know what the written contract says, but you also said...”
101
As a default rule, contractual rights can be assigned and duties can usually be delegated. Accordingly, a party may wish to "____" of one party to the terms of deal, or expressly limit delegations of certain contractual duties.
Bind Successors or Assignees
102
To avoid claims that the terms of a contract have been orally amended, contracts may include provisions allowing only for "____" amendments.
written
103
Where the parties are from different jurisdictions, a conflict of governing law may arise. Parties are generally free to choose which law they wish to apply to a contract via a "___" Clause
Choice of Law
104
Parties to contracts may wish to specify where and how disputes will be handled, if they arise, via a "____" Clause
Dispute Resolution
105
If a portion of the contract is declared unconscionable, void or otherwise unenforceable, the parties may wish to ensure that the remainder of the contract remains intact and is not rescinded, via a "____" clause
Severability
