Contract law Flashcards
What is the formula for damages for substantial performance? (recover in contract)
contract price- cost to receive full performance
What is the formula for material breach? (recover in restitution)
benefit conferred- damages for breach
What can I recover if I substantially performed?
A party who substantially performs contractual obligations (i.e., commits a minor breach) can recover on the contract even though that party has not rendered full performance. The substantially performing party can generally recover the contract price minus any cost that the nonbreaching party incurred to receive full performance.
What can I recover when I make a material breach of contract?
A party who commits a material breach by failing to substantially perform cannot recover under the contract. The breaching party can only recover in restitution for any benefit conferred on the non breaching party minus damages for the breach.
what is an assignment?
An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is a gratuitous assignment and is generally revocable A revocable assignment is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.
Define uncoscionability
A court may modify or refuse to enforce a contract on the ground that it is unconscionable—i.e., so unfair to one party that no reasonable person in that party’s position would have agreed to it. Unconscionability can be procedural or substantive, and it is a question of law for the court (not the jury) to decide based on the circumstances. The contract is substantively unconscionable if the terms are unduly unfair.
What is the primary goal of contract damages?
The primary goal of contract damages is to place the nonbreaching party in the same position as if the contract had been performed (i.e., to give that party the “benefit of the bargain”). This typically means that the nonbreaching party can recover compensatory damages, which includes:
expectation damages – the value of performance without the breach (what was promised) minus the value of the performance with the breach (what was received)
incidental damages – compensation for commercially reasonable expenses incurred as a result of the other party’s breach
consequential damages – compensation for losses that do not flow directly and immediately from the other party’s breach, including lost profits, so long as the losses are not too speculative
What is the difference between an accord agreement and a substitute agreement?
The primary goal of contract damages is to place the nonbreaching party in the same position as if the contract had been performed (i.e., to give that party the “benefit of the bargain”). This typically means that the nonbreaching party can recover compensatory damages, which includes:
expectation damages – the value of performance without the breach (what was promised) minus the value of the performance with the breach (what was received)
incidental damages – compensation for commercially reasonable expenses incurred as a result of the other party’s breach
consequential damages – compensation for losses that do not flow directly and immediately from the other party’s breach, including lost profits, so long as the losses are not too speculative
when does a breach happens?
A breach of contract occurs when a party fails to perform a contractual duty that has become due. Performance may be predicated upon a condition precedent, under which a contracting party’s obligation to perform arises only upon the occurrence of an uncertain future event. If the parties expressly agree to a condition precedent, then the condition precedent will be strictly enforced. This means that a contracting party must fully comply with the condition before the other party’s performance is due.
explain entrustment of goods under UCC
Under the UCC, which applies to contracts for the sale of goods, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:
in good faith
without knowledge that the sale violates the owner’s rights to the goods and
from a merchant in the business of selling goods of that kind.
Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.
Mistake as grounds for rescission
Mistake as grounds for rescission
Mutual mistake
Adversely affected party can rescind contract if:
mistake relates to basic assumption of contract
mistake materially affects agreed-upon exchange of performances
AND
adversely affected party did not assume risk of mistake
Unilateral mistake
In addition to above elements for mutual mistake, either:
mistake makes enforcement of contract unconscionable
OR
nonmistaken party caused, or knew or should have known of, mistake
what happens when both parties are mistaken as to an essential element of a contract?
When both parties are mistaken as to an essential element of a contract (i.e., mutual mistake) at the time the contract is formed, the contract is voidable by the adversely affected party if:
the mistake relates to a basic assumption of the contract
the mistake materially affects the agreed-upon exchange of performances and
the adversely affected party did not assume the risk of mistake.
A party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of the facts and accepts this knowledge as sufficient.
What is a contract?
Legally enforceable agreement
What are the topics to analyze in determining if a contract has been formed?
All Contracts Don’t stink
Agreement (offer and acceptance_
Consideration
Defenses to Formation (incapacity, duress, etc)
Status of fraud (enforceability)
What creates a contract?
An agreement:
Offer and acceptance
what is an offer?
A manifestation of a willingness of the offeror to enter into an agreement that creates a power of acceptance in the offeree.
What is the test governing offer and acceptance?
The objective test: Is what you say and your conduct what dictates if there is intent to enter into an agreement
If you know I am joking or if there is anger- possibly there is no intent
If I am expressing an opinion- that is not an offer.
Who can accept an offer?q
You can’t accept an offer unless is directed to you.
Except: Advertisements or rewards
What are the requiered terms for a contract to be valid?
Under Common Law:
parties, subject, pricem and quantity
under UCC:
the only essential term is quantity
UCC will fill the gaps for everything else
What is requirement contract?
buyer offers to buy 100% of whatever amount is needed from this individual seller
What is an output contract?
Seller offers to sell 100% if whatever amount is produced to this individual buyer.
Output and requirement K are specific enough under the UCC event though there is no exact quantity stated.
Offer to deal
a preliminary communication that reserves a final right of approval with the speaker. It does not convey power of acceptance to the other side
Advertisement
usually understood as an invitation to deal except for:
Reward advertisements
Advertisements that are specific and leave nothing open to negotiation including how acceptance occur.
How can offeror revoke offers?
1) By expressly communicating it to the offeree
2) The offeree LEARNS that the offeror has taken an action that is inconsistent with a continuing ability to contract. (
3) the offeree rejects the offer
4) offeree makes a counteroffer ( this is a rejection + new offer)
5) the offeror dies
6)A reasonable amount of time passes
Irrevocable offers ( the caterpillar has a shield)
Offeror can revoke at any time prior to acceptance even if he says I will keep the offer open for a week except:
1) option: when you pay to keep that offer open
2. Firm offer: Under UCC a merchant can make a firm offer to buy or sell goods
3) unilateral contracts= offer cannot be revoked if the offeree has started performance
4) detrimental reliance- Arises when an offeree reasonably and detrimentally relies on the offer in some foreseeable manner
Firm offer under UCC
Must be a merchant or business person holding himself out as having knowledge or skills particular to the goods
Transaction is commercial in nature
Offer must be:
written signed by the offeror
and contain explicit promise not to revoke
the firm offer will last either as long as stated in the offer or for a reasonable time not to exceed 90 days
Acceptance of the offer
The offeror is master of the offer and the offeree must accept according to the rules of the offer
Under the modern approach if there is ambiguity about whether the offer is unilateral of bilateral, acceptance can be by either performance or return promise.
uCC Trick about acceptance
Bob sends a letter to Sue, reading, “please ship me 500 windshield
wiper blades by next week for $5 each.” Sue ships 500 wiper blades the next
day. Is there a contract? _yes.
Note 11:TRICK What if the seller tries to accept by shipping the wrong
goods? The UCC treats this as acceptance plus breach.
Example 45: Bob sends a letter to Sue, reading “please ship me 500 Bosch
windshield wiper blades by next week for $5 each.” Sue ships 500 Sloshed wiper
blades the next day. Is there a contract?yes, but also a breach.
Other rules about acceptance
The offer must be directed to you for you to accept
You must know about the offer event if it’s open to all (reward)
You must communicate your acceptance to the offeror
When is an offer accepted if sent by mail?
Mailbox rule: acceptance sent by mail is effective when the letter is sent.
The rule does not apply when offeree sends something else first (rejection,counteroffer)
Doesn’t apply to other comms- just to offers
Doesnt apply to option contracts
When it isn’t necessary to communicate acceptance?
Unilateral reward contracts
Unilateral office where parties live to so close the other part can see the performance happening
If there’s past history of silence serving as acceptance
When the offer says that acceptance must come by silence and offeree intends to accept the offer by silence
implied in fact contracts- communicate acceptance by gestures or actions
Mirror image rule
From the common law : terms in the acceptance must match
the terms of the offer or else is a counteroffer.
conditional acceptance is a form of counteroffer. (if, only if, on the condition that, but, etc)
UCC is more forgiving- doesn’t have mirror image rule
Acceptance under UCC
Acceptance where not all terms match is still an acceptance under UCC.
But. not all terms in the acceptance will govern the contract.
It doesn’t matter if the parties are merchants for this part of the article 2-207
When will additional terms in the acceptance under UCC may control?1
under 2-202 (2):
both parties are merchants
the new term doesn’t materially alter the deal
the initial offer did not expressly limit acceptance to its terms
The offeror does not reject of object within a reasonable time to the new term
knock out rule under UCC acceptance
knock out both of the different terms; neither term will govern and the general gap=filling provisions of the UCC will apply.
Consideration
a deal in which the parties exchange promises involving legal detriment or benefit
Who is the promisor?
The person making the promise that needs to be supported by the law
What should you ask yourself to find out if there is consideration?
Exam Tip 3: The bar examiners like to test situations in which bargained-for
consideration is missing. Ask the following questions:
1. Who is making the promise that needs to be supported by
law? (That person is the promisor; the other party is the promisee.)
2. Is there a benefit to the promisor or a detriment to the promisee? (You need one, not both.)
3. Was this bargained for? (In other words, did the parties think they were making a deal when exchanging promises?
Legal detriment
Not doing something that you are entitled to do is legal detriment
What is not considered consideration
Gift promises and conditional gifts do not count as bargained for.
Nominal consideration is insufficient ( $1 for a car)
Illusory promises (I will sell it to you if I feel like it)
Past consideration is not consideration.
What is the pre-existing duty rule?
Used in common law:
a promise to do something you are legally obligated to do is not consideration.
Ex. I contract with painter to paint the house for 500. When he is halfway I offer 50 more for him to finish next day. There is no contract modification here because there is no new consideration. he was already binded to paint the house.
Modifying a contract
Contract modification require new consideration to be valid (pre-existing duty rule)
Except:
1) change in performance
2) a third party promising to pay
3) unforeseen difficulties that would excuse performance.
Modification trick question on partial payment promises
Promising a partial payment for release of a debt obligation- Ask yourself if the debt is currently due and undisputed. if so, the modification is NOT binding.
ALERT! It doesn’t make sense. It is just the way it is.
Does the UCC require consideration to modify contracts?
No
Only good faith. Modification will be binding even w/o consideration
What is Promissory Estoppel
Also know as reliance. Is a substitute for consideration.
It can arise when one party makes a promise and the other party relies on that promise to take some action
What are the three key elements for a claim under reliance?
1)A promise is made that would be reasonably expected to induce reliance
2_The promises do indeed take detrimental action in reliance on the promise; and
3) Injustice can only be avoided by enforcement of that promise.
Note: charities do not need to prove detrimental reliance when pursuing reliance theory to collect on a charitable gift promise
Reliance is also another aspect of irrevocable offers (caterpillar shield)
What is a quasi contract
AKA contract implied in law
Arises when you would have made a K if you could have, but you couldn’t, or when one party conferred a benefit on another party and it would be fair to pay for that benefit.
What are the elements of a quasi contract?
The plaintiff confers a measurable benefit on the defendant,
The plaintiff reasonably expected to get paid,
It would be unfair to let the defendant keep the benefit w/o paying
Exam tip: If you see a situation that does not satisfy the normal requirements for a K but still strikes you as unfair ask whether quasi contracts may apply.
When a contract for the sale of assorted goods does not specify who will choose the assortment, the UCC imposes a duty on the buyer to make that selection. If the buyer fails to specify the assortment of goods, then the seller can treat that failure as a breach—but only if the buyer’s failure to specify the assortment materially impacts the seller’s performance.
Warranty of mechantability
Promise: Goods are fit for ordinary purpose & conform to seller’s representations
Applicability:Implied whenever seller is merchant with respect to goods sold
Disclaimer:
Oral statement or conspicuous written statement specifically mentioning “merchantability”
Oral or written statement specifically mentioning “as is” or “with all faults”
Buyer’s inspection of goods or refusal to inspect (if inspection would reveal defect)
Course of dealing, course of performance, trade usage
UCC and the parol evidence rule on integrated docs
The UCC, which applies to contracts for the sale of goods (e.g., comic books), presumes that a contract is partially integrated. However, that presumption goes away when the writing contains a merger clause—i.e., a clause that declares the written contract to be the complete and final agreement between the parties. The written contract will instead be deemed completely integrated.
Installment contracts under UCC
Deliveries
Price for each installment generally due at time & place of each delivery
Seller’s damages for breach amount to missed payments
Buyer’s damages for breach amount to fair market value minus contract price for missed deliveries
Payments
Creditor’s damages for breach amount to missed payments
Special rules apply to installment contracts for the sale of goods (e.g., windows), which are governed by the UCC. Under the UCC, an installment contract is defined as a contract in which the goods are to be delivered in multiple shipments, and each shipment is to be separately accepted by the buyer. Payment by the buyer is due upon each delivery unless the price cannot be apportioned.
Auction contracts
Auction contracts
Goods in lots
Each lot of goods is sold in separate sale
Type of auction
Reserve (default type) – auctioneer may withdraw goods prior to completion of sale
No-reserve (special announcement required) – goods cannot be withdrawn after auctioneer calls for bids unless no bid is received within reasonable time
When seller bids
Winning bidder can avoid sale, or pay price of last good-faith bid, if auctioneer:
knowingly accepts bid by or on behalf of seller or
procures seller’s bid to drive up price of goods
Exceptions – seller can bid:
at forced sale or
if seller gives notice reserving right to bid
Completion of sale
When auctioneer announces end of sale (eg, by fall of hammer)
If bid is made contemporaneously with end-of-sale announcement, auctioneer has discretion to continue bidding
The UCC has special rules for goods sold at auction. If goods are auctioned in lots, each lot represents a separate sale. Whether the goods can be withdrawn once the auctioneer calls for bids depends on the type of auction:
at a reserve auction—which is presumed unless a no-reserve action is announced—the auctioneer may withdraw goods from auction prior to completion of the sale
at a no-reserve auction—which must be specifically announced—goods cannot be withdrawn from auction after the auctioneer calls for bids unless no bid is received with a reasonable time
In either type of auction, a bidder may retract a bid until the auctioneer announces the completion of the sale (e.g., at the fall of the auctioneer’s hammer). However, the bidder’s retraction will not revive any earlier bids.
Ways to discharge contractual obligations
Mnemonic: FIRM SCAN
Full performance of contractual obligations
Impossibility, impracticability, or frustration of purpose
Release (in writing only)
Mutual rescission
Substituted contract
Contract or covenant not to sue
Accord & satisfaction
Novation
Effect of statute of limitation on contracts
A contract must generally be supported by consideration to be enforceable. However, there are circumstances in which a promise is enforceable without consideration. For example, a new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most jurisdictions require that the new promise be in writing and signed by the debtor to be enforceable.
