Contracts Flashcards
what law applies?
Article 2: sale of goods
Common Law: any other contract
what is a contract
a legally enforceable agreement
express contract
created by the parties’ words
implied contract
created by conduct
Restitution
quasi contract; protects against unjust enrichment where contract law yields an unfair result.
usually a last resort.
bilateral contract
an offer can be accepted in any reasonable manner (acceptance is open)
unilateral contract
acceptance only by performance (offer …only by) or reward offer
what is an offer?
a manifestation of an intention to be bound (reasonable person standard)
elements: expression of a promise, undertaking, or commitment to enter into a contract, the terms are certain and definite, and it is communicated
Courts consider the surrounding circumstances/prior practice and relationship of the parties to determine whether an offer exists (jokes, bragging, etc have no legal effect)
is an advertisement an offer?
no, unless quantity i specified or terms are so clear as to leave no room for negotiation
indefiniteness
look to see if the terms of the offer are to indefinite to be enforced
if there is an open price: in UCC the court will read in a reasonable price but if CL, no
requirements contracts
usually no enforceability or a demand for a quantify unreasonably disproportionate to any stated estimate or any normal or other otherwise comparable prior output or requirement
missing terms
the court will read in reasonable missing price, or time of a contract but not vague terms
termination
Rule: an offer cannot be accepted after it has been revoked. Offer can be terminated by an act of either party or by operation of law.
lapse of time
type of termination.
an offer lapses after a stated term or after a reasonable time if no stated term
(if more than a month has passed since the offer, raise issue)
revocation
offer terminates when the offeror revokes the offer
an offer can be revoked at any time before acceptance
direct v indirect revocation
Direct: offeror indicated directly to the offeree tha the has changed his mind entering the deal (offeree needs knowledge of revocation)
indirect: offeror engages in conduct that indicates she has changed her mind and the offeree is aware of the conduct.
what are 4 instances that an offer CANNOT be revoked
option, firm offer, foreseeable reliance before/after acceptance, starting to perform a unilateral offer
option
a promise to keep the offer open that is paid for
firm offer adn exceptions
article 2
in sales of goods, if a merchant promises in a signed writing to keep an offer open, then the offer is irrevocable
exception:
can only be for 3 months max
if not time period is stated, court will fix a reasonable time period not to exceed three months
need a promise to hold the offer open
first look for an option then firm offer
foreseeable reliance before v after acceptance
offeror can still revoke an offer if before acceptance if it is unforeseeable, inversely foreseeable reliance does not allow revocation
starting to perform a unilateral offer before revocation
start of performance pursuant to unilateral offer makes the offerors offer irrevocable for a reasonable time
however, mere preparation to perform is not enough and revocation is allows\ed
when is revocation effective
revocation is effective on receipt (no mailbox rule) no need to have read if mailed
rejection of offer
offer terminates when the offeree rejects it
be careful of responses that look like acceptance but are actually counter offers, conditional acceptance and additional terms
counteroffer v bargaining
counter offer is rejection and bargaining is not
conditional acceptance
is both a rejection and counter offer
acceptance adding terms/varying offer
CL: acceptance must mirror the offer if the offeree adds terms it is a rejection
UCC: the offeree’s adding or changing term does not prevent acceptance, but they are included only if
- both parties are merchants
- not a material change/not conditional (money, remedy, liability)
- no objection within a reasonable time.
death terminates offer
death of either party before acceptance terminates a revocable offer but does not automatically terminate a contract nor an irrevocable offer
acceptance
An acceptance is a manifestation of assent to the terms of an offer
the language of the offer controls the manner of acceptance
starting performance as acceptance
bilateral: starting performance is acceptance and carries an implied promise to finish
unilateral: starting performance is not acceptance, only completion is acceptance.
offer is unilateral when:
- offeror clearly indicates that completion by performance is the only manner of acceptance
- offer to the public
improper performance as acceptance
it is both an acceptance and a breach
but if you accept and do something else as accommodation it is not a breach
offeree’s silence as acceptance
silence is not acceptance
- Custom creates duty to speak or
- If offeree knows or should jave know that the services are being rendered with the expectation of compensation and, by a word, could have prevented the mistake, she may be held to have accepted the offer if she fails to speak
timing of acceptance
acceptance is effective when mailed not when received.
exceptions:
- offer states otherwise
- irrevocable offer: no mailbox rule
- rejection sent first, then acceptance
consideration
makes the agreement that was formed legally enforceable
“bargained for exchange legal detriment or benefit”
can be promise in exchange for a promise, promise or even forbearance
pre-existing duty is not consideration unless: new or different consideration is promise, ratify voidable obligation, owed to 3rd person, honest dispute.
what about past consideration?
it is a misnomer and not consideration
adequacy of consideration
is irrelevant
contract modification issue:
is there consideration to enforce the modification?
CL: new consideration required to modify contract (performing preexisting duty is not enough)
but modern view allows if modification is due to unanticipated circumstances when K was formed, and it is fair and equitable
- asking for more $$ to do the exact same thing that they originally promised to do.
- If 3rd party makes subsequent promise is enforceable
sale of goods: no new consideration needed to modify a contract for sale of goods but you do need good faith.
partial promise of a debt that is due and undisputed
no consideration needed
time barred debt as an exception to the consideration debt
a written promise to pay debt, collection of which is barred by SOL, is enforceable even without consideration
promissory estoppel as a substitute for consideration
foreseeable reliance may make a promise enforceable even without consideration (only right answer if there is no consideration)
elements: promisor reasonably should expect to induce action or forbearance and such action or forbearance is in fact induced
duress
economic duress: look for bad guy making improper threat and vulnerable person having no reasonable alternative
lack of capacity:
minors, intoxication, mentally incompetent
rule: an incapacitated D has the right to disaffirm the contract but does not have to
implied affirmation after gaining capacity
if minor retains the benefit under the K after reaching 18 years of age (1-3 months)
exception to incapacity defense
the incapacitated party still liable for necessities but only for their reasonable value, not the contract price.
ambiguity/misunderstanding
no meeting of the minds, reasonable ambiguity. but if one knew or should have known, the ambiguity will be held against the person with knowledge
mistake
a mutual mistake about a material fact will rescind the contract (enforce contract if the value is a mistake) but no mistake if a party bore the risk (contractor v homeowner) assumption of risk fact patterns,
Unilateral mistake: unless palpable mistake. If unmistaken party knew or had reason to know of the mistake, the K is voidable by the mistaken party. (added too many 0s, etc)
unconscionability
empowers a court to enforce no or part of an agreement. if an unfair surprise or oppressive terms existed as of the time the agreement was made
look for contract of adhesion: take it or leave it, risk shifting provisions, exculpatory clauses, limitation on remedies
statute of frauds
writing signed by the party sought to be bound most oral contracts are enforceable unless: 1. marriage 2. year 3. land sale 4. executor 5. goods over 500 suretyship
marriage
contract in consideration of marriage are subjection to SOF but not a promise to marry
year
contract which cannot possibly be completed in a year or less. it doe snot matter if performance actually takes more than a year, so long as performance within a year was theoretically possible
land sales/transfe rof itnerest
transfer of interest of land for more than a year is subject to SOF
equal dignity rule: authorization for someone else to sell your land must be in writing only if underlying sale would be subject to SOF
suretyship
main purpose exception:
if the promisor’s principal reason for acting as surety is to secure her own economic advantage, then the agreement is not bound by the Statute of Frauds writing requirement.
sale of goods 500 or more
subject to SOF
suretyship
a promise to answer for the debt of another person but not mere promise to pay moneys
contract modification and interaction with SOF
the modification must be in writing only if the contract as modified is within the SOF, but if the original written contract prohibited oral modifications and instead required them written them in the must comply
CL: a clause that prohibits oral modifications are not enforceable so you can generally modify orally under CL even if agreed not to
what is enough to satisfy SOF
CL: writing must have all material terms and signed by defendant
sale of goods: must contain a quantity and be signed by party to be charged with
exceptions to SOF
land sale/real properties: lease of one year or less, past performance of real estate sale K needs some payment, possession and ior improvements
full performance of services K: satisfies SOF but past performance does not.
sale of goods 500+:
- sales accepted or paid by buyer: goods that buyer already accepted or if buyer has already paid for them but are not the unpaid
- customer made goods: not to show a substantial beginning to satisfy SOF that the goods are custom made and not suitable for children.
judicial admission: if D admits under oath that she had a deal then she will lose SOF defense
merchant’ confirmatory memo: can use one’s own signed copy to satisfy SOF against the other party if:
- both parties are merchants
- writing claims agreement and has quantity
- there’s no written objection w/in 10 days if
a. both parties are merchants
two merchants agree over the phone and one sends a written confirmation to the other. Article 2 lets one merchant use its own confirmation to satisfy the SOF against another merchant
suretyship
main purpose exception takes us outside SOF
parol evidence rule
Keeps out evidence of a prior or contemporaneous agreement (either written or oral) that contradicts a later writing. (note problems require a writing, if no writing think SOF)
exceptions to parol evidence rule
- correct a clerical error
- establish a defense against formation
- interpret a vague or ambiguous term—parol evidence is ok (oral or written evidence is ok)
- add a partially integrated writing
a. partial integration: final statement of the terms included but not a complete statement of all terms agreed to (if you see a partial or complete integration answer it is probably wrong) condition precedent - later events: parol evidence is irrelevant (stuff happens after K= modification analysis, is there new consideration?)
course of performance
how parties performed under previous installments of this contract. it is the BEST evidence of what the parties intended (3 months give broilers, next month try to give foul, broilers wins)
course of dealing
what parties did under PRIOR contracts with each other. Can help determining what the word means in this current contract but is less important than the current course of performance
usage of trade
what others in the trade do in similar contracts (less important than the first two)
express warranty
describe the goods, promise facts about the goods, showing a sample or model if part of the basis of the bargain, but not an opinion
implied warranty in sale of goods:
implied warranty of merchantability: goods are fit for their ordinary purpose. The seller is a merchant who deals in goods of the kind
implied warranty of fitness for a particular purpose: the goods are fit for the buyer’s particular purpose. The seller knows buyer has a special purpose and is relying on seller to select suitable goods.
disclaimers
a seller can disclaim implied warranties but not express warranties
- “as is” “with all faults” get rid of implied warranties Article 2
- Can have disclaimer so long as it is conspicuous, so written that reasonable person would notice it
limitation of buyer’s remedies
seller can limit buyer’s remedies for breach of any warranty (express or implied) as long as the limitation is not unconscionable (depends on the court determination)
PI limitation presumed to be unconscionable
risk of loss in sale of goods when no party is to blame
If seller bears risk: seller must provide new goods to buyer for no additional cost, or be liable for breach
If buyer bears risk: buyer must pay the contract price even though goods are destroyed
hierarchy to determine who bears risk
- Agreement allocates risk
- breaching party bears risk
- Delivery by common carrier: risk of loss shifts to buyer when seller completes its delivery obligations
a. can be shipment contract or destination contract - Non-carrier cases: buyer picks up or seller delivers: risk of loss depends on whether the seller is a merchant
a. Merchant seller bears risk of loss until buyer takes possession of the goods
b. Non-merchant seller: risk of loss passes sooner: buyer bears risk of loss once seller tenders the goods (makes then available to buyer)
shipment v destination K
shipment contract: seller must get the goods to a common carrier, make delivery arrangement, and notify the buyer
b. destination contract: seller must get the goods all the way to a specific destination (usually where the buyer is located)
c. (for test assume there is a shipment contract, unless told otherwise, look for term “FOB” free on board followed by a city name, the risk of loss passes to buyer at the named location)
i. FOB followed by seller’s city: shipment
ii. FOB by any other city: destination
performance of CL contracts
does not have to be perfect, only needs substantial performance
but material breaches ar e not ok and excuses innocent party from performance obligations
performance of K for sale of goods
Perfect tender rule: seller must deliver perfect goods in the risk place at the right time. if the tender is not 100% perfect, buyer has the right to reject the goods.
Option to cure (second chance)
seller who fails to make perfect tender may have an option to cure. Whether seller has the option usually depends on whether the time for performance has expired.
- Time has not expired: seller has option to cure
- Time has expired: seller does not have an option to cure unless there is reasonable grounds for thinking that her improper tender would have been acceptable.
Even though buyer has not insisted on perfect tender in the past, in this instance they can still require perfect tender but seller has reasonable time to cure.
installment K
requires or authorizes seller to deliver in separate installments (otherwise seller must deliver the goods in a single delivery)
substantial impairment rule not perfect tender. harder to reject
defect in installment substantially impairs the installment and cannot be cured
buyer’s acceptance of goods
- Implied acceptance: buyer keeps goods after having an opportunity to inspect them, merely paying for goods upfront is not enough, still need reasonable time to inspect, unless reasonable time has passed since delivery and has not inspected them
Consequences of buyer’s acceptance
- Once buyer accepts, it is too late for buyer to reject. But buyer can still get damages for seller’s breach
Buyer’s revocation of acceptance of the goods,
General rule: buyer cannot revoke acceptance of goods.
Exception: if the non-conformity substantially impairs the value of the goods and was difficult to discover (latent defect)
Consequences of rejection/revocation of acceptance
Return: buyer can return the goods at seller’s expense
Refund: buyer can get back any money buyer paid
Damages: buyer can get damages for breach of K
buyer obligation to pay with …
cash is ok unless otherwise stated. same with checks but seller can refuse. if so, buyer gets additional reasonable time to come in with cash
excuse for nonperformance in sale of goods
if seller’s performance eis not perfect in every respect “perfect tender rule” buyer has pretty much free reign
- Reject all
- Accept all
- Reject some and accept the rest
- But whatever option buyer chooses buyer can still get damages
excuse for nonperformance in CL Ks
Constructive condition of performance: implied condition that the duty of each party to render performance is conditioned on the other party rendering or making tender of his performance.
1. Nonbreaching party can recover if nonperformance is a material breach
Damages: injured party can recover damages for any breach of contract, whether the breach is material or not.
Excuse: but only a material breach provides an excuse to suspect innocent party’s performance
1. Divisible contract: breach per item, not overall material contract
anticipatory repudiation
provides for an excuse unless repudiation is retracted and has not been relied upon.
- Can sue immediately, wait to sue until performance date, treat as offer to rescind and discharge contract, urge performance
- Both need performance left in K
- Can be treated as immediate breach
Failure to give adequate assurance (article 2)
a party with reasonable grounds for being insecure about the other party’s performance may, in writing, request adequate assurance that the other party will perform in accordance with the contract. if no assurance given you can treat as anticipatory repudiation and you have an excuse
but cannot demand a specific type of assurance like rewriting the deal
Later agreement excusing original obligations
rescission, modification accord/satisfaction, novation
rescission
mutual agreement to cancel the contract. parties need to have some performance remaining from each party for rescission to be good.
accord /satisfaction
: an agreement to accept a different performance in future satisfaction of an existing duty. The duty suspended by the accord, but is not excused until the accord is satisfied
a. Whether you have a modification or an accord and satisfaction depends on the timing—is the underlying obligation excused right now (modification) or only later on (accord/satisfaction “then”)?
novation
an agreement to substitute a new party for an existing one (all parties are in agreement)
a. Does not apply to delegation
Impossibility as an excuse
A later unforeseen event that makes performance impossible may provide seller with an excuse. Under article 2 the doctrine is called impracticability
Destruction of something necessary for performance
- CL: destruction of subject matter of K provides an excuse for nonperformance
- Sale of goods (article 2)
a. Risk of loss: a seller who bore the risk of loss when goods were damaged or destroyed is excused by impracticability
b. Unidentified goods: seller is excused only if the goods that were damaged or destroyed had been identified to the contract. - Death/incapacity of essential person as an excuse to impossibility: not just any person; must be someone special/essential to performance
a. If buyer dies, death does not excuse, obligation goes to estate. - Supervening govt regulations = excuse due to impossibility
- Increase in costs of seller’s performance is NO excuse
Frustration of buyer’s primary purpose as an excuse
- If both parties understand the essential purpose of the K for both parties you will have excuse
Failure of an express condition is an excuse
Definition: language in K-limits obligations created by other contract language, but does not create an independent obligation. Look for words like “if,” “as long as,” “when,” “provided that,” “on condition that” and “unless.”
Rule: strict compliance required with express conditions but express conditions do not create obligations and cannot sue only excuses from performance
Satisfaction clauses
satisfaction is measured by reasonable person standard unless the K deals with art or matter of persona taste.
types of express conditions
- Condition precedent: an event that must occur before performance is due (I will do this if this happens first)
- Condition subsequent: an event that cuts off an existing duty (I will do this until this happens)
Excusing a condition
occurrence of a condition may be excused by the later action or inaction of the person protected by the condition (who is protected, then see if she did anything to lose protection)
- Failure to cooperate
- Waiver (voluntarily giving up protection) but can retract waiver for future acts if other party has not relied on the waiver
specific performance
an equitable remedy, available only if monetary damages are inadequate to compensate the injured party. The availability of SP depends on the nature of the contract: 1. Land 2. Goods vs 3. Services
- Real property/land sale: SP is generally available because real property is considered unique (even if boring land)
- Sale of goods (article 2): SP is available only if the goods are unique or there are other proper circumstances (an inability to buy similar goods in the market) inability to cover
- Personal service of contracts: SP is not available in service contracts but injunctive relief may be.
Unpaid seller’s right to reclaim goods (article 2)
General rule: not available under article 2 exception: if buyer was insolvent when it received the goods and seller makes a demand within 10 days after buyer received them (look for credit sale)
- If the goods are gone so are the seller’s reclamation right. Need to show buyer still has possession at time of the reclamation demand.
- But seller can reclaim goods at any time if the buyer misrepresented its solvency to seller in writing within three months of delivery
compensatory (money damages)
put injured party in as good position as full-performance. Compensate for lost expectation.
CL expectation damages
- Expectation damages: benefit of the bargain
- Reliance damages (expectation damages are uncertain) return to pre K status quo.
- Restitution: value of benefit conferred
sale of goods money damages
award expectation damages
Buyer’s damages if seller breaches (three options)
- Cover damages: cover price minus original contract price
a. If buyer covers in good faith - Market damages: market price minus contract price
a. Used if buyer does not cover in good faith or does not cover at all. - Loss in value: value as promised minus value as delivered
a. Used if buyer keeps non-conforming goods
Seller’s damages if buyer breaches
- Resale damages: K price minus resale price
a. If seller resells in good faith - Market damages: contract price minus market price
a. If seller does not resell in good faith or does not resell at all - K price if seller cannot resell the goods
- Lost profit: if seller is a lost volume seller
- Punitive damages are not available: purpose is to compensate not to punish
Liquidated damages
Upheld if damages: damages are written into contract
- were difficult to estimate at the time of the contract and
- Are reasonable forecast of probable damages but
- Cannot operate as a penalty
- In not applicable try to give expectation, market or restitution
Incidental damages
costs to the injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction are always recoverable
Consequential damages
indirect results from breach: consequential damages must be reasonably foreseeable to the breaching party at the time the contract is formed. (not available to seller under article 2)
Avoidable damages
An injured party cannot recover damages he could have avoided “mitigated” with reasonable effort
1. Unless the job is not comparable. (different or inferior kind)
Entrustment (article 2)
an owner who entrusts goods to a merchant who deals in goods of the kind (dealer) has no rights against a Bona fide purchaser
Third party beneficiary
two people enter a contract intending to benefit a third party
Intended beneficiary: A person who is not a party to a K, but has rights under the K because it was intended to benefit her.
Promisor: the party who promises to perform for the 3rd party
Promisee: party who secures the promise
Promisor’s liability: Third party beneficiary and promisee
- To 3rd party beneficiary
a. Can enforce K against promisor
b. Nonpayment is defense against 3rd party benificary
c. Incidental beneficiaries have no rights - To promisee
a. Promisee can recover from promisor
Rescission and modification of 3rd party deals
General rule: promisor and promisee can rescind or modify the contract until the rights of the 3rd party have vested.
Exception: contrary language in the K controls
Assignment of rights to a 3rd party
Definition: 2 people make a contract, later one (assignor) transfers his rights to a 3rd party (assignee)
The party who owes the duty (typically to pay $ to 3rd party) is the obligor
1. In an assignment, two parties enter a contract and a third person (the assignee) appears later on. With third-party beneficiary, all three persons are present from the start
Valid assignments must have a language of present transfer
- Must say I assign, not a promise to assign
- Consideration is not required to make a valid assignment
Restrictions on assignments
Contract language controls: distinguish a clause that prohibits assignments from one that completely invalidates3 under prohibition, assignee still can recover if no knowledge but not invalidation.
1. If it’s a close call, opt for prohibition over invalidation => therefore, the assignee can still collect if she did not know of the prohibition
Assignments cannot substantially change duties of the obligor
1. Money not a substantial change but performance rights are a substantial change
Obligor liability to assignee after the assignment
- Assignee can recover from obligor directly
- If assignor fails to perform, assignee has no rights against obligor
- Obligor must be aware of the assignee’s existence
Multiple assignees: which can collect?
- Gratuitous (gift) assignments are easily revoked
a. The last gratuitous assignee prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one - Assignments for consideration are more durable: first one wins
a. The first assignee for consideration prevails over all subsequent assignees as well as prior gratuitous assignees
b. Analyze each assignment in the order it was made to see if it was valid. - Exception: a later assignee for consideration prevails if he does not know of the earlier assignments and is the first to get payment from or a judgment against the obligor (notification is not enough!)
Delegation of duties to a 3rd party
Delegation is a transfer of K duties, not a transfer of rights.
General rule: K duties may be delegated to another party without the consent of the person to whom performance is owed (obligee)
Exceptions: K language controls
1. If the K also prohibits assignments you are also not allowed to make delegations
Person w/special skill or reputation CANNOT delegate (even w/someone that has even more special talent, oblige can accept but this is a novation)
rights of obligee when there is a delegation of duties to 3rd party
Delegating party always remains liable (compare/contrast w/novation)
A delegate who gets consideration is liable
Modification
an agreement to replace an existing contract with a new one: the modification takes effect immediately and eliminates the prior existing contract
Misrepresentation
inducement into K by fraud (info one knows is untrue) or if innocent party justifiably relied on the misrepresentation and it was material.
