Contract & Sales Flashcards
Nonconforming Goods & Perfect Tender Rule
A buyer can reject but the seller has the right to cure within the original time for performance. A seller cures but gives notice of his intention to fix before the end date of the contract. The buyer must accept the cure unless it is still defective.
How long does a seller have to cure?
Until the original end date of the contract, however, A seller is allowed extra time to cure only if prior dealing with the buyer, led the seller to reasonably believe that the defective shipment would have arrived acceptable.
How long does a seller have to cure? The exception to the Perfect tender rule.
Until the original end date of the contract, however, A seller is allowed extra time to cure only if prior dealing with the buyer, led the seller to reasonably believe that the defective shipment would have arrived acceptable.
Perfect Tender Rule and Installment Contracts
Installment contracts can only be rejected if the nonconformity substantially impairs the value of the entire contract. Each installment can only be rejected if the value substantially impairs the entire installment shipment.
Specific Performance
Specific performance is granted when: (i) there is a valid contract; (ii) the legal remedy is inadequate (this is when the subject matter of the contract is rare or unique like land sales); (iii) enforcement is feasible, and (iv) mutuality of remedy is present. Specific Performance is a court order requiring a breaching party to perform under a contract.
Specific Performance Exceptions
- Sale to BFP: There is no specific performance in land sales when the land has been sold to a BFP.
- Unclean Hands: the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon.
- Laches: Party delays in bringing an equitable action and the delay prejudices the Defendant.
- Can’t be used for service contracts
Mutual Assent
Offer + Acceptance. A meeting of the minds and an objective manifestation to contract, if offers stating the same terms cross in the mail it does not create a contract.
Offer
An offer is an expression of willingness to enter into a bargain made in a way that the other party could reasonably believe that he could conclude the bargain by accepting. Must show intent to offer and definite terms.
Acceptance
Assent to an offer’s term. In a unilateral contract, this is only by performance in a bilateral contract you can perform or promise. Can’t accept an offer if there is no knowledge of it.
Consideration
Bargained for exchange of something of legal value.
First, there must be a bargained-for exchange between the parties; and second, that which is bargained for must constitute a benefit to the promisor or a detriment to the promisee.
Modern courts would hold that a promise to forbear suit on a claim that the promisor honestly and reasonably believes to be valid is a good consideration to support an agreement, even if the claim ultimately turns out not to be valid
Defenses to a Contract
- Mistake
- Lack of Capacity
- Illegality
- Statute of Frauds
Requirements Contract
buyer promises to buy all they require from the seller and the seller gives them that amount. exception: can’t be unreasonable amounts on a whim. Although no specific quantity is mentioned in offers to make these contracts, the offers are sufficiently definite because the quantity is capable of being made certain by reference to objective, extrinsic facts. Consideration also is present, as the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods from another source.
Output Contract
Seller promises to sell all of the goods it produces and buyer agrees to buy then.
Essential Terms of a Contract
- Names
- Price (NEEDED IN LAND so supplement)
- Subject Matter
- Time
Terms can be supplemented and vague terms can make a contract void
The UCC provides that a written contract’s terms may be explained or supplemented by evidence of course of performance, course of dealing, and usage of trade-regardless of whether the writing appears to be ambiguous
How to Terminate an Offer
- Lapse of time
- Rejection (express or by counter offer) by offerer
- Revocation by offeror
A rejection is effective when it is received.
Merchants Firm Offer
An offer between merchants that is in writing and signed by the offeror is held open, no longer than three months if no time is stated, and assurance is given.
Contract Formula
K = MA (Offer and acceptance) + consideration - Defenses
Limits on Offeror’s Power to Revoke
- Option Contract
- Merchant’s Firm Offer
- Determinantal Reliance
- Beginning Performance in response to a true unilateral contract
How to termiante an offer by law
- Death/ Insanity
- Destruction of Subject Matter
- Supervening illegality
Exceptions to the mailbox rule
- Stipulates acceptance is not effective till received
- Option Contracts
- Rejection sent before acceptance - whichever arrives first
Statute of Frauds MY LEGS
Marriage
Year +
Land
Executor of an Estate
Goods $500+
Securities
Mirror Image Rule
Common law, acceptance has to mirror each and every term of the offer
Battle of the Forms
An acceptance that adds terms to an offer is valid between merchants the terms become part of the contract unless they materially alter the offeror’s objective, or the offer is limited to its terms. This does not invalidate the contract, it just determines if those terms will be included.
If both parties to the contract are merchants, the additional terms in the acceptance will be included in the contract unless they materially alter the original terms of the offer; the offer expressly limits acceptance to the terms of the offer; or the offeror has already objected to those terms, or objects within a reasonable time after notice of the terms is received. Whether an alteration is material is a fact question.
Mailbox Rule
When accepting an offer by mail, your acceptance is valid upon dispatch
Pre existing duty rule
Past consideration is invalid
Exceptions to the Pre-Existing Duty Rule
- Written promise to pay a time-barred debt
- New or different considerations promised
- Promising to ratify a voidable obligation
- Compromise of honest dispute
- Unforeseen circumstances make modification fair and equitable
- Good faith modification under Article 2
Substitutes for Consideration
- Promissory Estoppel
- Detrimental Reliance
Promissory Estoppel
b) Issue # 1: Was There a Promise?
c) Issue # 2: Did the promise induce an action/inaction?
d) Issue # 3: Was that action reasonably expected by the promisor?
e) Issue# 4: Would Injustice be avoided by enforcement?
f) Issue #5: What would be the scope of the damages?
Detrimental Reliance (a type of promissory estoppel)
Under the doctrine of detrimental reliance, a promise will be enforced to the extent necessary to prevent injustice if it was made with a reasonable expectation that it would induce reliance, and such reliance was in fact induced.
Unilateral Mistake
The contract is voidable only if the non-mistaken party had reason to know of the mistake. If a mistake is to terms, and only one party is aware there is a contract.
When writing is inaccurate because of a misrepresentation by the person who created the writing, the innocent party can seek reformation of the contract to reflect the original expressed intent of the parties
Mutual Mistake
The contract is void by the adversely affected party when the mistake concerns a basic assumption on which the contract was made, the mistake has a material effect, and the party seeking avoidance did not assume the risk. If the mistake is in the terms if both parties are confused or if neither was aware contract is void.
Defenses to Contract Formation
- Mistake
- Ambiguous Terms
- Fraud
- Misrepresentation
- Illegality of consideration or subject matter
- Incapacity (infant, drunk, mental illness, duress, undue influence)
- SOF
- Unconscionablitliy
Fraud
when either this is misrepresentation in the inducement of the contact or misleading statements in the contract
Misrepresentation
a false statement of material fact that affects the other person decision in entering a contract
Duress
Fearing for safety and then entering the contract. A person is wrongfully forced or coerced into entering the contract.
Undue Influence
To prove undue influence, a party must show that one party to the contract is a person with weaknesses which make him likely to be affected by such persuasion, and that the party exercising the persuasion is someone in a special relationship with the victim that makes the victim especially susceptible to such persuasion.
Unconscionability
If a contract is unfair or oppressive to one party in a way that suggests abuses during its formation, a court may find it unconscionable and refuse to enforce it.
Parol Evidence Rule
When parties intend that writing is the final expression of their bargain, no prior or contemporary expression is admissible to vary the terms. Contracts are final and complete for sure when there is a merger clause that states it’s final.
Even if the agreement is completely integrated under the parol evidence rule, evidence is admissible to define (as opposed to vary) the terms of the contract.
When the parties to a contract express their agreement in writing with the intent that it embodies the full and final expression of their bargain, the writing is an “integration,” and under the parol evidence rule, admissibility of evidence seeking to vary its terms is limited.
If the writing is only a partial integration, and not a complete embodiment of the parties’ intentions, under the parol evidence rule, it cannot be contradicted, but it may be supplemented by proving consistent additional terms
The parol evidence rule provides that where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, any other expressions, written or oral, made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. Certain forms of extrinsic evidence are deemed to fall outside the scope of the parol evidence rule. For instance, a party to a written contract can attack the validity of the agreement. One way of doing so is by asserting that there was an oral agreement that the written contract would not become effective until the occurrence of a condition. Such a condition would be deemed a condition precedent to the effectiveness of the agreement, and evidence of the condition will be freely offered and received.
Exceptions to Parol Evidence Rule
- If the writing is incomplete, evidence is allowed to supplement
- Concerning Validity
- Evidence to interpret terms
- Evidence Showing consideration
- Evidence in action for reformation
Gap Fillers - Art 2.
Article 2 will fill in certain things if necessary:
1. Price (reasonable)
2. Place of delivery (sellers business)
3. TIme of shipment (reasonable time)
4. TIme of payment (a receipt of goods)
5. Assortment (buyer’s option)
Noncarrier Cases
Merchant: Where the seller is a merchant, the risk of loss does not pass to the buyer until the buyer takes physical possession of the goods.
Nonmerchant: Risk passes upon tender of delivery
Carrier Cases
Shipment: Risk passes on delivery to the carrier
Destination: Risk passes on tender at the destination to buyer
FOB: Risk passes on delivery to FOB location
Implied Warranty of Merchantability
Goods are fit for their ordinary purpose, this is implied in every goods contract unless disclaimed. For a disclaimer to be effective, a disclaimer must be part of the offer and acceptance process or must be agreed to by the buyer as a modification
Implied warranty of Fitness for a particular purpose
implied when the seller has reason to know the particular purpose for which goods to be used and the buyer is relying on that and so does rely
Disclaimers of Warranties
- Title (can put on notice)
- Merchantability (as is, must mention merchantability)
- Fitness for a particular purpose (as is)
- Express - usually not given effect
Modification Common Law
Additional consideration is needed but the modern view allows fair and equitable consideration if due to circumstances that were unanticipated. Written contracts can be modified orally.
Modification UCC
No consideration is needed as long as the modification is in good faith, it must be in writing if the contract is more than $500 under the SOF.
Contract Exscused
- Failure to Cooperate
- Breach
- Anticipatory Reputation
- Prospective inability or unwillingness to perform
- Substantial performance
- Divisibility of the contract
- Waiver or estoppel
Anticipatory Repudiation
Anticipatory repudiation occurs where a promisor, prior to the performance time, unequivocally indicates that he cannot or will not timely perform, allowing the nonrepudiation the option of suspending performance and waiting to sue until the performance date or to sue immediately.
If unsure ask for adequate assurances. Under UCC, can treat as a total breach.
When a buyer breaches by repudiating his offer the seller has a right to recover his incidental damages plus either the difference between the contract price and the market price or the difference between the contract price and the resale price of the goods, reduced in either case by any expenses saved as a result of the breach. Can be retracted if the party has not relied on repudiation and started making other arrangements.
Contract Discharged
- Perforamce or tender of perdoramnce
- occurrence of a condition subsequent, conditions can be excused by words or conduct that they won’t insist upon it. Promise to waive can be retracted before detrimentally relied upon.
- Illegality of the subject matter after the contract was made
- Impossibility of impracticality or frustration of purpose
- Receission of contract
- Modification of contract
- Novation
- Accord and Satisfaction
Express Warranties
arises from any statement of fact or promise
SOF Defined
In general, when a certain type of contract is formed, there needs to be signed writing by the party to be charged (person selling).
Types of Damages Contracts
- Compensatory (either expectation of consequential)
- Liquidated (Actual damages hard to calculate and reasonably forecast od the number of damages)
- NO PUNITIVE DAMAGES
- Land Sale = Contract price - FMV
- Stipulated Damages. The parties to a contract may stipulate what damages are to be paid in the event of a breach if (i) damages are difficult to ascertain at the time the contract is formed, and (ii) the amount agreed on is a reasonable forecast of compensatory damages in the case of a breach.
Penalties in contracts are unenforceable but can be construed as stipulated damages if meet the above elements.
Types of Damages for Buyer in Sales of Goods
- Cover (Contract Price - Replacement goods)
- Contract Price - Market Price
- Warranty Damages
- Consequential Damages
Types of Damages for Seller in Sales of Goods
- Contract Price - Resale Price
- Contract Price - Market Price
- Lost Profits
Damages in Employment Contracts
- Employer Breach = full contract price or difference between the new job and the previous salary
- Employee Breach = Cost to replace employee
Damages in Construction Contracts for Builders
- Prospective Profits (expectation) if breached before construction, If things have been bought in preparation that is “one of a kind” but construction hasn’t officially started breach is considered profits + price of those items that can’t be reused (reliance).
- Contract price - completion of what has been done if the breach is during.
- Full contract price plus interest is after finished or substantially finished
Damages in Construction for Owners
- Cost of completion + compensation for delay if breached before or during
- Value of Lose use if late
Remedies
- Specific Performance
- Damages
- Restitution
- Receission and Reformation
Restitution Damages
Prevents unjust enrichment, when a contract is discharged the other party is entitled to this on whatever hasn’t been performed.
Recession
contract voidable/rescinded if the mutual mistake of material fact, unilateral mistake that the other party knew or should have known or extreme hardship, misrepresentation of material factor, or duress, undue influence, illegality, incapacity, or failure of consideration
Reformation
writing changed to conform to parties original intent if mutual mistake, unilateral mistake and party know of its and does not disclose or misrepresentation
Accord
An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance
Satisfication
Satisfaction is the performance of the accord agreement. Satisfaction discharges not only the original contract but also the accord contract. If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt.
Novation
A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation discharges the old contract. A novation will be found when there is (i) a previous valid contract; (ii) an agreement among the parties, including the new party to the new contract; (iii) the immediate extinguishment of contractual duties as between the original contracting parties; and (iv) a valid and enforceable new contract
Third-Party Beneficiaries
Rights Vest when there is manifested assent, brought suit to enforce the promise or materially changed position in justifiable reliance. Just because something was a gift doesn’t mean it can’t be enforced
Can a Donee Beneficiary sue as a third party?
May not sue promisee unless there is a detrimental reliance
Can a Creditor Beneficiary sue as a third party?
may sue promise on underlying obligation
When are contract rights assignable?
All contract rights are assignable unless the assignment materially alters the obligor’s duty or risk or is prohibited by law. If a contract prohibits assignment it only bars delegation of duties. The new party then stands in the shoes of the old tenant and is liable for covenant that run with the land.
When are assignments revocable?
Assignments that are for value
What is the assignor warranty liablity?
- He has made no prior assignment
- The right not subject to limitation or defense other than disclosed or apparent
- He will do nothing to defeat or impair the right
What if there are successive assignments?
revocable when the subsequent assignee prevails irrevocable when the first assignee has priority.
What duties can’t be delegated?
- Personal judgment or skill
- Special trust
- Restricted by contract
- Performance that will change the obligee’s expectancy
What is the liability under a delegation?
- Delegator is liable
- Delegate liable if he assumed the duty
- Assignment of contract or rights under the contract construed to include delegation and assumption of duties.
Advertisers and Catalogs are?
Solicitations to offer or invitations to offer
Impracticability
The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform.
Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged.
The test for a finding of impracticability is that the party to perform has encountered: (i) extreme and unreasonable difficulty and/or expense; and (ii) its nonoccurrence was a basic assumption of the parties.
Expectation Damages
In breach of contract usually entitled to expectation damages. These damages put the injured party back in the position as if the contract had been performed. One measure of damages is the cost of restoration, however, if the cost is way greater than the value of the property, other things may be taken into consideration.
Reliance Damages
Cost of performance so far in reliance on the contract
Compensatory Damages
To compensate for any damages or loss
Punitive Damages
NO PUNITIVE DAMAGES IN CONTRACTS. These are damages to punish.
Frustration
A contract can be discharged when there is a supervening act or event leading to the frustration, at the time of the contract that parties did not Foree the act or event, the purpose of the contract had been completely or almost completely destroyed by the act and the purpose of the contract was realized by both parties at the time of agreement.
Privity of Estate
Landowner and Tenant. If tenant assigns he is no longer in privity of contract iwth the landowner, the new tenant is.
Privity of contract
Person’s who agreed upon the original contract. Lasts through the terms of the lease.
Sublease
When a lease is assigned not for its full duration. Sublessor is not personally liable to the landlord for rent or for the performance of any other covenants made by the original lessee in the main lease because they do not have privity of estate. They also do not have the privity of a contract with the original landlord.
Breach of Warranty Damages
Buyer can recover loss resulting in the normal course of events from the breach, this includes the difference between the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages.
Incidental Damages
Expenses reasonably incurred in inspection, receipt, transportation, are, and custody of goods rightfully rejected.
Consequential Damages
Consequential damages may be recovered only if at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of a breach. To recover consequential damages, the plaintiff must show that the breaching party knew or had reason to know of the special circumstances giving rise to the damages. Can recover lost profits if there is sufficient evidence.
Minor’s and Contracts
Minors generally lack intent to enter contracts binding themselves, however, they can choose to be bound by the contract upon reaching the age of majority. Affirmance is expressed or by failing to disaffirm within a reasonable time after reaching the age of majority.
Custom - Contract Construction
One of the general rules of contract construction, including contracts for goods under the UCC, is that courts will look to see what customs and usage are in the particular business and in the particular locale where the contract is either made or to be performed
Unilateral Contract
acceptance is permissible only be performing
Bilateral contract
acceptance is accomplished by a promise to do the stipulated act.
Oral Parol Evidence RUle
under the parol evidence rule, when the parties express their agreement in writing with the intent that it embodies the final expression of their bargain, any other expressions-written or oral-made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.
However, if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. The rationale is that the written agreement is not being altered by parol evidence because the written agreement never came into being.
Part Performance Exception to SOF
Takes a sale of goods to contract out of SOF when the goods have been specially manufactured or the goods have been paid for or accepted
Sale of Goods Over $500
A manufactures letterhead can = a signature if intended to authenticate or adopt a contract. Needs to evidence quantity.
Merchants Confirmatory Memo Exception
In contracts between merchants, if one party in a reasonable time after an oral agreement sends to the other party a written confirmation of the agreement that is sufficient under the SOF to bind the sender, it will also bind the recipient if he has reason to know of the contents of the confirmation and he does not object within 10 days of receiving the memo.
When is a written communication deemed received?
(i) it comes to a person’s attention, or (ii) it is delivered at a place of business through which the contract was made. The communication need not be read by the recipient to be effective.
When is an offer deemed revoked?
A revocation generally is effective when received by the offeree.
Option Contract
A contract held open for a period of time when paid for with consideration. Can’t terminate the offer until the option period is ended, even if the offeree tries to terminate.
Illusory Promise
a promise that is unenforceable due to indefiniteness or lack of mutuality, where only one side is bound to perform.
Land Sale SOF Exception
need 2/3: Paid for the land, Possess the land, Made improvements to the land
Shipment Contract
the seller must ship the goods by carrier but is not required to tender them at a particular destination. the risk of loss generally passes to the buyer when the goods are delivered to the carrier. There is an exception, however, if the buyer has a right to reject the goods. In that case, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods.
Impossibility
Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform.
If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event’s occurrence, duties under the contract may be discharged.
If there is an impossibility, each party is excused from duties that are yet to be performed.
If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
Assignee Rights
an assignee has whatever rights his assignor would have against the obligor. Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor.
Minor v. Major Breach
If there is a major breach contractor is liable for the entire contract, if a minor breach only liable for part no preformed
How to reject non conforming goods?
within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection
Mitigating Damages
A non-breaching party cannot recover avoidable damages, he must refrain from piling up losses after the breach. He should make reasonable efforts to cut down losses and if he does not he will not be permitted to recover damages that could have been avoided. Don’t have to take a job that’s way less comparable.
Waiver of Conditions
one having the benefit of a condition can waive that condition by indicating by words or conduct that he will not insist on that condition’s being met. If the party waives the condition, that party must perform despite the condition’s failure. Consideration is not required for a valid waiver of condition.
Condition Precedent
A condition precedent must occur before an absolute duty of immediate performance arises in the other party. A contract of satisfaction that involves matters of personal taste, such as this one, is fulfilled only if the promisor is personally satisfied. If the promisor claims that she is not satisfied, her lack of satisfaction must be honest and in good faith.
Where there is an oral condition precedent, evidence of the condition falls outside the parol evidence rule.
