Contract & Sales Flashcards
Formation of contracts =
offer, acceptance, and consideration
Offer is created when…
Creation: There must be intent to enter into a contract plus
specific terms (e.g., price, quantity, and identity of the
parties). And, it must be communicated to the offeree.
Note: A requirements or output contract will not fail for
lack of quantity. The amount sold or requested must be in
good faith and not unreasonably disproportionate to a
stated estimate or prior comparable output.
Termination of an offer: (list four ways to terminate)
There are four ways to terminate an offer:
(1) Lapse of time: an offer lapses after a reasonable time.
(2) Rejection (including counteroffer, which is a rejection
and a new offer)
(3) Revocation of an offer: An offer can be revoked
before acceptance unless it is falls into one of the
(FOUR) categories:
(A) Firm offer by a merchant in a signed
writing under the UCC. This offer can be held
open for a maximum of three months.
(B)Option contract: a promise to hold open
the offer plus consideration for that promise.
(C)Unilateral contract: if the offeree begins
performance on a unilateral contract, the offer
is held open for a reasonable time.
(D) Reasonably foreseeable substantial
reliance on the offer.
(4) Death or incapacity of offeror
How is a bilateral contract accepted?
Bilateral contracts are accepted by a promise to perform or
beginning performance.
Unilateral contracts. What are some examples of them and how are they accepted?
Unilateral contracts (rewards, prizes, or offers that specify they
are unilateral) can only be accepted by full performance. Tip: most
contracts are bilateral.
How are UCC offers accepted?
- Article 2: An offer for the sale of goods is accepted by
promising to ship or shipping the goods. Note: if the seller ships
defective goods with an accommodation letter, that constitutes a
counteroffer. If there is no letter, it is an acceptance and a breach.
When is acceptance effective? What are exceptions?
Acceptance is effective: acceptance is effective when sent (the
mailbox rule).
* Exceptions: an option contract (acceptance effective upon
receipt) or if a rejection then an acceptance is mailed (the one
received first controls).
Terms of acceptance for common law:
Common law: the acceptance must be the “mirror image” of
the offer.
Terms of acceptance for UCC
An acceptance does not need to mirror the offer and may
have additional or different terms. Between merchants, an
additional term will be a part of the contract unless it materially
alters it, the offeror objects within a reasonable time, or the offer
limits acceptance to the terms of the offer. Under the majority rule,
a different term is knocked out and replaced with gap fillers.
What are examples of not consideration?
The following are not consideration: a promise to make a
gift, a moral obligation, past consideration, or an illusory
promise.
What is reliance? (consideration)
Reliance (a substitute for consideration): if there is a
promise and foreseeable and justifiable reliance,
enforcement will be granted as necessary to avoid injustice.
Modifications for common law requires what?
- COMMON LAW
Consideration is needed to modify a contract. The
performance of a preexisting legal duty is not
consideration unless it falls into an exception (e.g.,
unforeseen difficulty, a good faith settlement of a
lawsuit, a good faith payment in full of a due and
disputed debt, a written promise to pay a time-barred
debt, or if the duty was owed to a third person).
Modifications for UCC require what?
Only good faith is needed to modify a contract.
CL: When does the other party’s duty arise? What are exceptions?
one has to substantially perform one’s duties in order for the other party’s duty to arise.
* Exception: Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly. Tip: courts find that most conditions
are “constructive” and substantial performance is enough.
What are the performance requirements for the UCC? What is the exception?
The seller must provide perfect tender of the goods (or the buyer can reject the goods). If the seller does not provide perfect tender and the buyer rejects the goods, the seller only has an automatic
right to cure if (1) there is time left to perform under the contract, or (2) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a
discount (e.g., the seller sent better goods than contracted for).
* Exception: Installment contract. The buyer may reject an installment if there is a “substantial impairment” and the seller cannot cure the installment.
* Note on revocation: If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. Revocation is a higher standard than rejection as it
requires showing that the defect substantially impairs the value of the goods to him, among other things.
What are the delivery obligations for carrier cases?
Carrier cases: Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has
to get the goods to the shipper and the risk of loss (ROL) passes to the buyer at that point. For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”),
the seller has to get the goods to the destination.
What are the delivery obligations for NON-carrier cases?
If the seller is a merchant, the seller must actually deliver the goods to the buyer for the ROL to pass. If the seller is not a merchant, the seller must tender delivery (make
the goods available) for the ROL to pass.
What happens if seller is in breach of delivery obligations?
if the seller is in breach, the ROL is on the seller until the defective goods are cured by the seller or accepted by the buyer.
When is a party excused from performing if the other party breaches?
A party is excused from performing if the other party breaches. An anticipatory repudiation occurs when a party unequivocally breaches. If this occurs, the other
party can sue immediately, suspend performance and wait to sue, treat the contract as discharged, or urge the other party to perform. A prospective inability to perform is when a party has reasonable
grounds for insecurity that the other will not perform. The insecure party can demand adequate assurances that performance will take place. Note that conditions can also be waived.
How is a duty to perform discharged?
Occurrence of a condition subsequent: This is a condition that cuts off a duty. (E.g., “I will paint the house until it starts to rain.” The rain is a condition subsequent that cuts off the duty to
paint the house.)
* Agreement: examples include novation (a new party steps into the shoes of an existing party), modification, release, accord and satisfaction (the parties agree to new or different
consideration), and rescission (the contract is undone).
* Frustration of purpose: the primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred
after the contract was entered into.
* Impossibility: an event that renders performance impossible occurs after the contract was made, it was not reasonably foreseeable at the time of the contract, the nonoccurrence was a
basic assumption of the parties, neither party is at fault, and neither party bears the risk.
What is an express warranty?
Express warranties are affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.
What is the implied warranty of fitness for a particular purpose?
By contrast, the implied warranty of “fitness for a particular purpose” is a promise that a seller makes when the customer relies on the advice that a product can be used for some specific purpose. The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed. Tip:
the seller does not have to be a merchant.
What is a limitation of remedies clause?
A limitation of remedies clause is a contractual provision that limits or controls the remedies. It is enforceable unless it is unconscionable or it “fails of its essential purpose.” The clause is
unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.
What the general rule for interpretation of a contract?
- General rule: Express terms control. Then courts look to course of performance, course of
dealing, and trade usage.
What is a gap filler?
the UCC has default rules for terms that govern contracts for the sale of goods
if no term is stated in the contract (e.g., if nothing is said as to price, the price is a
reasonable price at the time of delivery).
How do you keep terms out with the parol evidence rule?
The PER applies when a party
wants to add a term from preliminary negotiations to a final written agreement.
If there is a complete integration, will terms be admitted into evidence?
If there is a complete integration, no terms will be admitted into evidence. Tip: look
for a merger or integration clause in the contract; e.g., one that states, “this is
the full and final agreement.”
If there is a partial integration, will additional terms be admitted?
Yes.
What does the parol evidence rule not apply to?
FICCL:
Formation defenses
Interpretation of a term
Failure of a condition precedent
A clerical error
A later modification
What are Intended Third-Party Beneficiaries?
Have rights under a contract once their rights vest. Rights vest when there is assent, reliance, or when the third party brings a lawsuit.
Do Incidental TPBs have rights under a contract?
No
Factors to determine if a TPB is intended:
(1) Is the TPB expressly designated in the contract?
(2) Is performance directly to the TPB?
(3) Does the TPB have any rights?
(4) What is the relationship between the TPB and the promisee?
What is a delegation and what is needed to delegate a duty?
Generally, one may delegate duties under a contract unless the contract prohibits it or if the
contract involves special skill, judgment, or trust. Neither consent, nor consideration, nor a
writing is needed to delegate a duty. The delegator remains liable on the contract after
delegation. The delegatee is liable if he receives consideration from the delegator.
How are rights assigned?
Generally, rights can be assigned unless the assignment substantially changes the obligor’s duties
or the contract prohibits it. An assignment may not be revoked if there was consideration given
or if it is payment for a preexisting debt. An assignment is revoked if the assignor takes
performance directly or makes a subsequent assignment to a different party.
What is the rule of SOF?
Rule: The SOF requires a writing signed by the party to be charged that evidences a contract.
Tip: the “party to be charged” generally means the defendant.
Which contracts fall into the SOF?
(MYLEGS) contracts made in consideration of
marriage, contracts that cannot be performed within a year, contracts for the sale of land,
promises made by an executor to pay a debt from his own estate, contracts for the sale of
goods over $500, and surety contracts.
Exceptions to SOF defenses:
Land: part performance (when one’s actions evidence a contract; e.g., the buyer
does two of the following three things: takes possession of the property, improves
the land significantly, or pays a substantial amount of the purchase price).
Sale of goods: the four exceptions are
(1) merchants confirmatory memo exception,
(2) when the seller has made a substantial beginning in manufacture or
commitments for specially manufactured goods not suitable for sale to others in the
seller’s ordinary course of business,
(3) judicial admissions (one admits in his pleadings, testimony, or in court that there
is a contract—it is enforceable up to the quantity admitted), and
(4) part performance (one pays for or accepts a part of a contract).
Surety: a promise to pay the debt of another if the other does not pay falls within
the SOF unless the main purpose of the surety promise is to serve a pecuniary
interest of the person making the promise.
Year: full performance on one side will serve as a substitute for a signed writing.
What’s the incapacity defense?
Incapacity for minors, mentally incompetent, or intoxicated persons. However, they may be
liable for “necessities.”
What’s the duress defense?
when a party threatens to commit a wrongful act that would threaten the other
party’s finances, property, well-being, or life.
What’s the undue influence defense?
unfair persuasion where a person in a position of trust, confidence, or
dominance uses that position to convince another to enter into a contract that is not in that
party’s best interest.
Mutual mistake:
Mutual mistake: if both parties are mistaken about a basic assumption of fact that
materially affects the agreed upon exchange and neither bears the risk, the contract is
voidable.
Unilateral mistake
if a party knew or had reason to know of the other party’s mistake, the
contract is voidable.
Mutual misunderstanding
there is no contract if both parties have a different understanding
of a material term that is open to at least two reasonable interpretations and neither
party has any reason to know of the meaning attached by the other.
Illegal subject matter (e.g. selling drug) defense
The contract is void. If it is for an illegal
purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have
the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the
purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”
