Contracts Flashcards
A binding K requires…
1) manifestation of mutual assent
2) consideration
3) lack of valid defenses
What is an offer?
objective manifestation of a willingness by offeror to enter into agreement that creates power of acceptance in offeree
What is the intent requirement for an offer?
- Person to whom it is communicated could reasonably interpret it as an offer
- Expresses present intent of a person to be legally bound by a K
What is the knowledge requirement for an offer?
offeree must know of the offer in order to have the power to accept
What is the general terms requirement for an offer?
must be certain and definite or the K fails for indefiniteness
What terms are required for an offer under CL?
Essential terms (parties, subject matter, price, quantity) must be covered in K.
If the parties intended to create a K, the court may supply missing terms.
What terms are required for an offer under UCC?
Only essential term is quantity.
Exception—requirements or output Ks (UCC implies “good faith”).
UCC “fills the gap” if other terms are missing.
K formed if both parties intend to K and reasonably certain basis for giving remedy.
When do you use the UCC and when do you use CL?
UCC: goods
CL: services and real prop; construction contracts
What kind of language/targeting is required in an offer?
offer must contain words of promise, undertaking, or commitment, and be targeted to a number of people who could actually accept
What is a bilateral K?
Exchange of promises that render both enforceable. When a return promise is requested.
What is a unilateral K?
Promise to do something by one party in return for an act of the other party. When an act is requested.
Are advertisements offers or invitations to deal?
advertisements are only an invitation to receive offers (but may qualify as an offer if sufficiently specific and limit who can accept or if associated with a stated reward)
When does an offer lapse due to the passage of time?
When there is a specified termination date or a reasonable period of time if none is stated
Does an offer lapse after death/mental incapacity of the offeror?
Generally, offer terminates, even if offeree does not learn of offeror’s death until after the offeree has sent what he believes is an acceptance.
Exception—offers for option Ks do not terminate because consideration was paid to keep the offer open.
Does an offer terminate after the destruction of the subject matter of the offer?
Yes
Does an offer terminate due to illegality?
Yes
Up to when can an offer be revoked? When does a revocation become effective?
Any time prior to acceptance (even if it states it will be open for specific amount of time).
Not effective until communicated. Revocation sent by mail not effective until received.
When is an option K offer enforceable?
When consideration has been given.
What is the UCC firm offer rule?
Offer irrevocable (for reasonable time but no more than three months) if offeror is a merchant (or any business person), and assurances (in authenticated writing) are made that offer will remain open. No consideration needed to keep offer open.
What is the rule around promissory estoppel and the revocability of offers?
If offeree reasonably and detrimentally relies on offer it may become irrevocable.
What is the rule around partial performance and the revocability of offers?
For all Ks, offeree must have knowledge of offer when
performance begins.
Unilateral K—offeror cannot revoke once offeree has begun performance.
Bilateral K—commencement of performance operates as promise to render complete performance.
What is the rule for revocation of a general offer (to large number of people)?
Revocable only by notice given at least same level of publicity as offer (effective even if potential offeree acts in reliance on offer).
What counts as a rejection of an offer and when is it effective?
Offeree clearly conveys to offeror that he no longer intends to accept the offer.
Rejection usually effective upon receipt.
What does a counteroffer count as?
Acts as rejection of original offer and creates new offer
Define an acceptance generally
objective manifestation by the offeree to be bound by the terms of the offer
Does starting performance count as an acceptance wrt a unilateral K?
Starting to perform is not enough, but it will make offer irrevocable for a reasonable period of time to complete performance.
Is there a knowledge requirement on the part of the offerree for a unilateral K?
Yes–Offeree must be aware of offer before acting.
What is an acceptable means for acceptance of an offer?
unless offeror specifies, offeree can accept in any reasonable manner/means
When is silence acceptance?
not acceptance unless offeree has reason to believe offer could be accepted by silence or previous dealings make it reasonable to believe that offeree must notify offeror if he does not intend to accept
Can the shipment of goods count as acceptance?
Yes. Buyer’s request that goods be shipped is inviting acceptance either by seller’s promise to ship or by prompt shipment of goods.
What if an offer is accepted by shipping goods but they are nonconforming goods?
both an acceptance and a breach, unless seller
seasonably notifies buyer that goods are an accommodation (counteroffer); buyer may then accept or reject the nonconforming goods
What is the mailbox rule?
Applies only to acceptance, almost exclusively to bilateral Ks. Acceptance effective when sent (not upon receipt), unless offer provides otherwise.
What happens if a rejection follows an acceptance?
acceptance will control even if offeror receives rejection first (but if offeror detrimentally relies on rejection then offeree estopped from enforcing K)
What happens if an acceptance follows a rejection?
mailbox rule does not apply; first one received
(i.e., in possession of offeror or her agent, or deposited in mailbox) will prevail; offeror need not actually read the received communication
Does the mailbox rule apply to options and other irrevocable offers?
mailbox rule does not apply; acceptance must be received by offeror by a certain date or before offer expires
What is the notice requirement for a unilateral K?
Offeree not required to give notice after completing performance, unless: Offeror wouldn’t learn of performance with reasonable certainty and
promptness; or Offer requires notice.
What if notice is required in a unilateral K but it is not provided?
offeror’s duty is discharged, unless:
- Offeree exercises reasonable diligence to give notice;
- Offeror learns of performance within reasonable time; or
- Offer indicates notice of acceptance is not required.
What is the notice requirement for a bilateral K?
Offeree must give notice of acceptance.
If acceptance is made by beginning performance (like under UCC), notice is required within a reasonable time; failure to give notice results in offer’s lapse.
What if there are additional or different terms in the acceptance?
CL: Mirror-image rule: Acceptance must mirror the terms of the offer, so any change or addition to the terms acts as a rejection and a new counteroffer. Conditional acceptance terminates the offer and acts as new offer from original offeree.
UCC: Acceptance containing additional or different terms generally treated as acceptance.
What if there are additional terms in acceptance and neither party is a merchant, what happens under UCC?
Definite and seasonable expression of acceptance sent within a reasonable time is usually acceptance of original offer, and new terms are treated as proposed additions to the K that must be separately accepted by offeror.
Exception—an acceptance expressly conditioned on assent to new/different terms is treated as a counteroffer.
What if there are additional or diff(?) terms in acceptance and both parties are merchants, what happens under UCC?
Battle of the forms: Additional terms—automatically included in the K, unless:
- Term materially alters original K (i.e., would result in surprise or hardship);
- Offer expressly limits acceptance to terms of the offer; or
- Offeror objects to new terms within a reasonable time after notice of new terms is received.
If one of these exceptions is met, original terms of offer control.
What if there are diff terms in acceptance under UCC?
“knock-out” rule: different terms in offer/acceptance nullify each other, and court uses Article 2’s gap-filling provisions to patch holes in K
What if offer and purported acceptance differ too much
to create a contract but the parties begin to perform anyway, then UCC…
Allows for a contract to be recognized with the following terms:
- Any terms actually agreed upon in the parties’ writings, and
- Any supplementary terms filled in by the UCC
What is consideration?
Bargained-for legal detriment to the promisee.
Consideration can be return promise to do or refrain from doing something, or performance of or refraining from doing some act.
What are the elements of consideration?
- bargained-for in exchange for the
promise - promise must induce the detriment, and
- detriment must induce the promise
What makes a gift diff than consideration?
Test to distinguish gift from valid consideration is whether offeree could reasonably believe intent of offeror was to induce the action (if YES, then there is consideration
and promise is enforceable).
What is the concept of promissory estoppel wrt gifts?
If promisor/donor knows that promise to make a gift will
induce substantial reliance by promisee and failure to enforce it would cause substantial injustice, promise is enforceable.
How is the adequacy of consideration measured?
Subjective value—benefit to promisor need not have economic value; if promisor wants it, giving of it will constitute adequate consideration
What is the preexisting duty rule?
CL—does not qualify as consideration unless promisor gives something in addition to what is owed, or varies preexisting duty in some way.
Exception for third party—party’s promise to a third party to perform an act the party is contractually obligated to perform for another is sufficient consideration.
preexisting duty rule does not apply to a sale of goods governed by the UCC
Is past consideration ok?
modern trend towards enforcing past promises under the material benefit rule
What is the material benefit rule?
when a party performs an unrequested service for another party, the modern trend permits the performing party to enforce the promise of payment for material benefits received to extent necessary to prevent injustice (unless donative intent)
Does a contract mod require consideration?
CL—must be supported by consideration, and agreements to modify K are enforceable if:
- Rescission of existing K and entering into of new K
- Unanticipated difficulties arise and modification is fair and equitable, or
- New obligations arise on both sides
UCC–Requires only good faith. No consideration is necessary. The UCC Statute of Frauds generally requires that a modified contract be in writing where the value of the goods is $500 or more. There is an exception for specially manufactured goods, but for this exception to apply, the goods cannot be suitable for sale to others in the ordinary course of the seller’s business.
What is an accord?
one party agrees to accept a different performance from the other party to satisfy the other party’s existing duty
What counts as satisfaction (post-accord)?
Performance of the accord agreement will discharge both the original K and the accord K. Original K not discharged until satisfaction is complete.
An unliquidated or disputed claim may be discharged by negotiable instrument (e.g., a check with the note “Payment in full”).
What is the rule for illusory promises?
not legally binding because it is vague or promisor can choose whether or not to honor it
Can voidable or unenforceable promises constitute consideration?
Yes
What is a requirements K?
buyer agrees to buy all that he requires
What is an output K?
seller agrees to sell all that she manufactures
What’s a limitation on requirements/output Ks?
Quantities may not be unreasonably disproportionate to estimates.
What is the consideration for a requirements/output K?
There is consideration because promisor suffers legal detriment
Is a promise not to assert (or a release of) a claim or defense consideration?
No, unless the claim or defense is doubtful or the party promising not to assert (or releasing) the claim believes in good faith that it is valid
Is a new promise to pay debt after SoL has run enforceable with or without new consideration?
Without it
Is a new promise to perform voidable duty enforceable?
Yes if it doesn’t suffer from an infirmity rendering it voidable
When is a promise without consideration binding under doctrine of promissory estoppel?
- Promisor should reasonably expect it to induce action on the part of the promisee or a third person
- Promise does induce such action, and
- Injustice only avoided by enforcement of promise
What are void Ks? Voidable Ks? Unenforceable Ks?
Void: Entire transaction is null, as if no K existed.
Voidable: Operates as valid K until/unless one party takes steps to avoid it.
Unenforceable: Valid K that cannot be enforced if one party refuses to carry out its terms.
Can a mutual mistake be a defense to K formation?
Yes. If both parties mistaken as to essential element, K generally voidable by party adversely affected if:
- Mistake existed when K was formed
- Mistake relates to basic assumption of K
- Mistake has material impact on transaction, and
- Adversely affected party did not assume the risk of mistake
But neither party can avoid K if reformation available to cure mistake. Court can reform writing except to extent that rights of third parties who relied on K
would be unfairly affected.
Can a unilateral mistake be a defense to K formation?
Either party can enforce K on its terms, but mistaken party can void K if he didn’t bear risk of mistake and either:
- Mistake would make enforcement of K unconscionable, or
- Non-mistaken party caused the mistake, had duty to disclose or failed to disclose mistake, or knew or should have known the other party was mistaken.
Must be absence of serious prejudice to other party to rescind K.
What constitutes a K misunderstanding?
both parties believe they are agreeing to same material terms, but they in fact agree to different terms
What happens if neither party knows or has reason to know about a K misunderstanding?
No K if material term involved
What happens if one party knows or has reason to know about K misunderstanding?
K formed based upon meaning of material term as understood by unknowing party
What happens if both parties know the terms are ambiguous at the time of K formation and there ends up being a misunderstanding?
no K unless both parties intended same meaning
Waiver—one party can choose to enforce K according to other party’s understanding
Are misunderstandings judged objectively or subjectively?
Subjectively
What is a misrep in the K context?
an untrue assertion of fact (i.e., present event or past circumstance)
Fraudulent misrep
A misrepresentation is an untrue assertion of fact. A fraudulent misrepresentation can render a contract voidable by the adversely affected party if
(i) the misrepresentation is fraudulent (i.e., a false assertion of fact made knowingly or recklessly without knowledge of its truth, and with the intent to mislead the other party),
(ii) the misrepresentation induced assent to the contract, and
(iii) the adversely affected party justifiably relied on the misrepresentation.
A statement as to a future event is generally an opinion rather than a statement of fact. However, when a statement about a future event implies that it is based on facts unknown to the listener, the listener may be justified in believing that the speaker knows of facts that justify the opinion, or at least that the speaker does not know of any facts that are incompatible with the opinion.
What is the rule around nondisclosure (in context of defenses to K formation)?
A type of misrep. Conduct to conceal a fact or nondisclosure of a known fact is tantamount to an assertion that the fact does not exist.
What is the consequence of a fraud in factum (execution)?
fraud misrep prevents party from knowing character/essential term of transaction, so no K is formed and apparent K is void unless reasonable diligence would have revealed K’s true terms
What is the consequence of a fraud in the inducement?
fraudulent misrepresentation is used to induce another to
enter into a K; K voidable by adversely affected party if she justifiably relied on the misrepresentation
What is the consequence of nonfraudulent misrep (innocent/negligent)
renders K voidable by adversely affected party who justifiably relied on material misrepresentation and was
induced to assent to K because of it
What if it’s a party’s fault in not knowing or discovering facts before entering into K?
a party’s fault in not knowing or discovering facts before entering into the K does not prevent the party’s reliance on the misrepresentation from being justified (unless it constitutes a failure to act in good faith)
Can misrep be cured?
Yes, K not voidable if facts cured before deceived party has avoided the K
What can a deceived party do when content/legal effect of K is misrepresented?
deceived party can avoid K or reform it to express what was represented
What is undue influence? What are its elements?
unfair persuasion of a party to assent to a K
Relationship between dominant party and dependent party due to lack of expertise or experience, or diminished mental capacity. Persuasion of one party seriously impairs the free and competent judgment of other party.
When there is a confidential relationship and undue influence…
dominant party has burden of proving K was fair (may be held to higher standard of disclosure)
When there is third party undue influence…
victim may void K unless nonvictim party to K gave
value or materially relied on K in good faith and without knowledge of undue influence
What damages are available when undue influence is a defense to K formation?
Restitution available
What is duress? What are its elements?
Improper threat that deprives party of meaningful choice.
- Improper threat–Threats of criminal or civil action (made in bad faith), or threats to breach K in violation of good faith and fair dealing
- Deprivation of meaningful choice—person has no reasonable alternative such that threat induced his assent
What is the consequence for duress?
K is void when duress is through physical compulsion and voidable in other instances
What is the rule for children and capacity to K?
Infancy (under 18)—voidable by infant but not by adult (except for reasonable value of necessaries)
What is the rule for mental illness and capacity to K?
K is void for one who is adjudicated mentally incompetent, but only voidable if there has been no adjudication
What is the rule for when someone is under a guardianship and their capacity to K?
K is void for individuals under guardianship (except for reasonable value of necessaries)
What is the rule for intoxication and capacity to K?
K is voidable by intoxicated party if she was unable to understand nature/consequences of K and other party knew of intoxication
What are the rules about illegality and enforcement of a K?
K is unenforceable if consideration/performance under K is illegal
K is void if it contemplates illegal conduct
Duty to perform is discharged if K becomes illegal after formation
If one party is justifiably ignorant of facts making K illegal or lacks illegal purpose can he recover (assuming guilt of other party)?
Yes
If a party knows of the other party’s illegal use (of a K), can they still recover?
Yes, unless the party furthered the illegal use or the use involves grave social harm??
What are the exceptions to illegality defense to contract K?
- Ignorance or lacks illegal purpose
- Divisible K (legal v. illegal parts)
- Licensing violation: If licensing violation and req is just to raise revenue, party who fails to comply can still enforce; but if it has regulatory purpose, cannot enforce
- Restitution: When parties not equally at fault (not in pari delicto), less guilty party can recover; and party who withdraws from illegal K before improper purpose achieved may recover if not engaged in serious misconduct.
When is unconscionability a defense to K enforcement?
all or part of the contract must have been unconscionable at the time of contract formation
K is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would agree to it (e.g., hidden, complex boilerplate language, adhesion Ks)
