Contracts Flashcards
Contract Formation: Requirements
Offer: manifestation of intent to enter a contract.
Acceptance: Manifestation of assent to contract.
Consideration: A legal detriment or a bargain for exchange (promise to perform/forbear).
Offer
A manifestation of intent to offer. 3 requirements:
- Intent
- Essential Terms
- Communication to Offeree
Essential Terms of an Offer
1. Identification of Offeree (exceptions: first come first serve; rewards)
- Price term
- UCC/CL: Court will fill in a reasonable price term (as long as it was not vague)
- MI CL: Missing price term defeats contract formation. - Quantity
- Necessary for UCC contract, but an input/output can be used. Amount sold must be in good faith and not unreasonably disproportionate from past amounts/expectations.
Offer: Is it terminated?
An offer can be terminated 4 ways:
- Lapse: offers lapse after a reasonable time (face-to-face lapses after convo).
- Rejection: once rejected, any acceptance is a counteroffer. (Exception: option K).
- Revocation: You can usually revoke any time before acceptance. Exceptions:
A. Firm Offer: merchant’s offer for the sale of goods, in a signed writing, gives assurance it will be held open. This will be held open for the stated time or a reasonable time not exceeding three months (not automatically 3 months).
B. Option K: Promise to keep an offer open in exchange for consideration.
C. Performance Begins on Unilateral K
D. Substantial Reasonably Foreseeable Reliance on K: usually bidding with GC and SCs.
- Death or Incapacity of Party (even if other did not know. Exceptions:
A. Option K
B. Performance Begins on Unilateral K
Acceptance: How do you accept?
Manifestation of assent to the contract.
- Effective upon placement in mail (unless option K or acceptance and rejection both sent).
Offeror is the master of the offer and can mandate any method of acceptance. If it is unclear, it will be treated as a suggestion, and buyer can accept in any reasonable manner.
Acceptance: Common Law
- Mirror Image Rule: acceptance must be a mirror image of the offer, otherwise it is a counteroffer.
- Last Shot Rule: if parties continue like there was a valid contract, the party whose terms were last sent will govern the contract.
Acceptance: UCC
A seasonable expression of acceptance with additional/different terms is valid acceptance unless acceptance is made conditional on assent to the additional/different terms.
If so, it is a counteroffer. If parties continued like there was a contract, the like-terms will govern and the court will use gap fillers for the rest.
If it is not made conditional on assent:
Additional Terms: incorporated into contract if it is a contract between merchants, unless:
- Offeror’s offer was conditional on its terms;
- It materially alters the contract (i.e., liability); OR
- The offeror objects within a reasonable time.
If one of these 3 exists, the terms are not incorporated, and are treated like proposals that can be accepted/rejected.
Different Terms: Knockout Rule
- Majority (+MI): Similar terms govern; gap fillers for rest
- Minority: Treats just like additional
Consideration: Generally
Consideration: A legal detriment or a bargain for exchange (promise to perform/forbear).
Consideration: Gratuitous Promise
Promises to make a gift are not consideration.
Consideration: Illusory Promise
A promise completely within the control of the promisor are not consideration.
However, a contract based on satisfaction is NOT illusory.
- These just need to be executed in good faith
Consideration: Moral Obligations
Does not constitute consideration.
Exception: Material Benefit (narrow)
If there is an emergency, the promisor receives a material benefit, and the promisee’s act was not a gift.
Consideration: Past Consideration
Nothing is inducing the promise, so it is not consideration.
Consideration: Inadequate Consideration
Courts generally do not care about the adequacy of the consideration, unless it is so gross as to shock the conscience of the court. Ex:
- Sham consideration ($1, usually never paid)
- Token consideration (completely without value)
Consideration: Pre-Existing Legal Duty
Ex: I promise to do your landscaping for $2,000. You feel like I might not finish. You offer me an extra $500 to finish on time. I finish. I try to sue you for the extra $500, but you say it was a pre-existing legal duty:
Performing a pre-existing legal duty is not consideration because you already had the duty to perform that act. However, there are some exceptions:
- Changed Duty: if you change your duty even slightly, you can enforce it.
- Claim Release: as long as the claim is valid or there is a good faith belief it is valid.
- Unforeseen Difficulty: if contract becomes impracticable.
- UCC Contract: only requires good faith
- Time-Barred Debt: written promise to pay a debt barred by SOL is enforceable w/o consideration (up to the writing)
- Extra Person Involved: pre-existing duty owed to third person
- Releasing a Pre-Existing Debt: good faith payment in full of a disputed debt will enforce the promise to release the debt.
Promissory Estoppel
This exists when there is no contract formed.
Requires:
- A promise
- Foreseeable and justifiable reliance
- Enforcement is necessary to avoid injustice.
Damages: reliance damages
How do you interpret the terms of a contract?
1) Express terms govern over all else
2) Course of performance: how parties have acted previously re: the same transaction
3) Course of dealing: how same parties have acted in previous contracts with each other
4) Trade usage: what is the custom in the trade
Parol Evidence Rule
Applies when one party is trying to add a term from a prior or contemporaneous negotiation to a final (integrated) written agreement.
Complete Integration: parties intended the agreement to be final as to all of the terms of their agreement.
- Merger clauses: evidence of complete integration in CL; but conclusive in MI CL and UCC.
- PER will BAR the evidence
Partial Integration: parties intended the terms in the writing to be final, but the agreement does not contain all of the terms of the agreement.
- PER will not bar additional consistent terms
When does Parol Evidence Rule not apply?
- Forming a Defense: trying to prove contract was never formed
- Ex: mistake, duress, etc. - Failure of a CP: to prove the contract would not have been effective (NOT for a CS).
- Naturally Omitted Terms: additional agreements relating to the subject matter that would not be expected to be included.
Warranties & Remedies
- Express: facts/promises relating to the goods or any model/sample that are part of the basis of bargain.
- Can be by conduct
- Not mere puffing
- Express terms cannot be disclaimed. - Implied Warranty of Title: seller warrants that they have title.
- Disclaimed with specific language - Implied Warranty of Merchantability: Merchant who deals in goods of the kind automatically warrants that the goods are fit for their ordinary purpose.
- Implied Warranty of Fitness for a Particular Purpose: seller has reason to know why the buyer is buying the goods, buyer relies on the seller to pick suitable goods, and the buyer does, in fact, rely on the seller.
IWM and IWFPP are disclaimed by:
- Express language
- Selling ‘as is’
- Through prior dealings
- If seller demands buyer inspect the goods, buyer does not, and the defects are those that would have been caught during inspection.
Limitation of Remedies:
Enforceable unless it is unconscionable or the remedies fail of their essential purpose.
- Unconscionable if they limit consequential damages for personal injury.
Performance Obligations: Carrier Contracts
The risk of loss depends on whether it is a shipment or destination contract.
Shipment Contract: seller’s obligation is to deliver the goods to the third-party shipper. The seller must:
- Deliver the goods to the carrier;
- Make appropriate arrangements for shipping; and
- Notify the buyer of shipment and tender any documents necessary to allow buyer to take possession.
If seller does this, he is not liable for damages in transit. This is the DEFAULT; also, if it says FOB Seller’s Place of Business.
Destination Contract: seller’s obligation is to deliver the goods to the specific destination. Only the case if contract says:
- FOB Buyer; or
- Ex Ship
Performance: Non-Carrier Contracts
The risk of loss usually remains on the seller until the goods are either: (1) Accepted by the buyer; or (2) cured by the seller.
Even if the buyer revokes acceptance, the risk of loss remains on the seller.
Conditions
If a condition is unsatisfied, the party is no longer obligated to perform. However, you cannot purposely put something in the way of a condition to prevent it from happening.
Condition Precedent: condition must occur for duty to arise in other party. If duties cannot be performed at same time, performance precedes payment.
Condition Subsequent: Condition will cut off an already existing duty to perform
Common Law: Level of Performance
One must substantially perform. Once there is substantial performance, the other party must perform.
Minor breach: other party must still perform but can withhold damages or sue for breach.
Major breach: other party is excused from performing.
How to tell if breach is major/minor?
- Assess level of completion; willful/negligence; hardship of fixing it; adequacy of damages; benefit received by plaintiff; etc.
Exact performance is only required if there is an express condition that requires it.
- These are disfavored unless strong language is used (like a satisfactory condition).
UCC: Level of Performance
Perfect Tender Rule: If goods fail to conform in any way, buyer has 3 options:
- Reject all goods
- Accept all goods
- Accept as many units as he wants and reject the rest.
Rejection
Must occur before acceptance. He rejects if he gives timely notice to seller.
If he does not state reasons for rejection, he cannot later rely on them if:
1. Seller could have cured the defects; or
2. If seller requested a writing of defects and buyer failed to provide it (b/w merchants)
Acceptance
Buyer indicates they conform; keeps them despite a nonconformity; does any act inconsistent with the seller’s ownership.
Right to Cure
Seller still has a right to cure if:
1. There is time to perform on the K; or
2. Seller reasonably believed the nonconformity would be acceptable
UCC: Revoking Acceptance
If buyer accepts goods, he usually cannot reject them. However, he can when:
- Nonconformity substantially impairs the value
- He accepted because either: He had a reasonable belief the nonconformity would be cured; or he did not discover the nonconformity because it was difficult to discover (or because of seller’s assurances);
- He revokes w/i reasonable time after he discovers or should have discovered it;
- He revokes before any substantial change in condition of the goods not caused by their own defect.
He must hold the goods with reasonable care and permit the seller to remove them.
Exceptions to Perfect Tender Rule
Installment Contracts follow the substantial impairment rule:
Rejecting an Installment:
Buyer can reject installment when nonconformity substantially impairs the value of that installment, and cannot be cured
Rejecting the entire contract:
Only if nonconformity substantially impairs the value of the whole contract. Buyer must seasonably notify seller of cancellation.
Divisible Contracts (Special Rule)
A divisible contract is one that is:
- Apportionable; and
- Parties would have contracted for each part separately
A party that performs one or more parts of a divisible contract can collect payment for those parts even if he did not complete his duties.
Excusing Conditions: Ways
If one of these exists, the other party will be excused from performing:
- Breach: if one party does not perform (or materially breaches), the other party is excused.
- Waiver of Condition
- Prospective Inability to Perform
- Anticipatory Repudiation
Excusing Conditions: Waiver
A party benefitted by a condition can waive it. Two types:
A. Estoppel Waiver: party relies on a statement from the person whom the condition benefits before it occurs.
B. Election Waiver: statement from the person who the condition benefits after it occurs.
Excusing Conditions: Prospective Inability to Perform
When a party has reasonable grounds for insecurity that the other party will not perform (doubts).
UCC: Party can demand, in writing, adequate assurances. He can suspend until he gets assurances. If he does not get assurances within 30 days, he can treat it as repudiated.
Excusing Conditions: Anticipatory Repudiation
There is a clear manifestation by one party that:
A. They will not perform
B. And the statement is made before their performance is due.
The party who repudiates can retract it unless the other party cancels the contract, relies on repudiation, or tells them their repudiation was final.
Other party can:
- Sue immediately (unless they fully performed, in which case they must wait).
- Suspend performance and wait to sue
- Treat contract as discharged
- Urge the other party to perform
