Contracts Flashcards
When a transaction involves both the sale of goods and the rendering of services, the:
predominant purpose test applies to determine whether the common law of contracts or Article 2 of the UCC applies to the entire transaction
The parol evidence rule:
prevents the introduction of prior extrinsic evidence that contradicts the terms of the written contract
If a writing is a total integration:
The parties cannot introduce extrinsic evidence of prior or contemporaneous understandings or negotiations
Four Corners Rule
Common law rule that permitted courts to look only at the writing itself for evidence of intent
Common law modification of existing contract:
must be supported by consideration
Article 2 of the UCC governs Ks for:
The sale of goods. Goods are things moveable at the time of identification to the contract
- A contract under Article 2 may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract
Common law governs Ks for:
Services and real estate
Implied warranty of fitness for a particular purpose:
(1) seller is an expert,
(2) seller makes representations about a product,
(3) buyer relies on seller’s expertise, and
(4) seller is aware of buyer’s reliance
Disclaimer: MUST BE CONSPICUOUS
Perfect Tender Rule (UCC)
Goods tendered by seller must perfectly conform wit the contractual specifications
When there is no perfect tender buyer can accept the goods, reject all goods, or accept some of the goods
Once goods are accepted they may not be returned unless defect was not immediately discoverable by purchaser
What damages are appropriate in a contract for the sale of goods where there is a breach by the seller?
Buyer is entitled to EXPECTATION damages or the COST TO COVER
Under the CL, if a party unequivocally informs the other party that he will not perform:
This amounts to an anticipatory repudiation and is treated as a breach
Non breaching party can: sue for damages immediately or wait until time for performance to be due to sue under the K
When a party breaches, the goal of contract law:
Is to place the nonbreaching party in the position they would have been in had the contract been performed (expectation damages). Expectation damages include consequential damages.
Nonbreaching party also has a duty to mitigate damages in order to reduce total liability
Consequential damages
Damages that were reasonably foreseeable at the time of performance
Lost profits: Need to prove them with a reasonable degree of certainty
When the nonbreaching party fails to mitigate damages:
The court can award damages in the amount that the loss would have been had the nonbreaching party properly mitigated
Proper inquiry is whether reasonable efforts to mitigate were made
An option contract is:
a promise to keep an offer open for a specific period of time in exchange for consideration (something that induces a party to uphold the agreement)
Merchant’s firm offer exception to consideration requirement for option K
When a merchant promises to hold an offer open for a reasonable period of time in a memo and signs it, that offer will be held open w/o consideration
Merchant: someone who normally deals in the type of goods being sold
A contract is enforceable when:
There is mutual assent between parties based on an offer and an acceptance
An offeror may revoke his offer at any time:
so long as the offeree receives notice of the revocation
Valid notice: direct communication from offeror OR indirectly by learning from reliable 3rd party of offeror’s inconsistent acts
Offer is revoked if offeree receives direct or indirect notice of revocation
Offer
Objective manifestation of a willingness by offeror to enter into an agreement that creates a power of acceptance in offeree
Counteroffer
Rejection of offer and creation of new offer
Acceptance
Objective manifestation by the offeree to be bound by the terms of the offer
- Effective upon dispatch (normally)
Rejection
Manifestation of assent not to accept the offer
Consideration
Legal detriment or bargained for exchange
- Past consideration is generally no consideration unless the jurisdiction has adopted the material benefit rule
Pre-existing duty rule
Promising to perform a legal duty already owed to a promisor is not valid consideration
*EXCEPTIONS: duty is changed, unforeseen circumstances
Contract Modification
CL: Consideration is required
UCC: Only good faith is required
Promissory Estoppel
A promise is binding if:
(1) Promisor should reasonably expect it to induce action on the party of the promisee or a third person,
(2) Promise does induce such action, and
(3) Injustice is only avoided by enforcement of the promise
Substantial Performance (CL)
Party must substantially perform its contractual obligations in order to demand performance from the other party
Divisible Contract
A party that performs one or more parts of the K may collect payment for those parts even if he does not substantially complete performance of his duties
Revocation of Acceptance
Buyer can do this when:
(1) nonconformity substantially impairs the value to him;
(2) he accepted the goods because he had reasonable belief that the nonconformity would be cured or because the nonconformity was difficult to discover,
(3) he revokes within a reasonable time after he discovers or should have discovered the nonconformity, and
(4) he revokes before any substantial change in the condition of the goods which is not caused by their own defect
Anticipatory Repudiation (CL)
Promisor repudiates clearly and unequivocally before time of performance is due
Nonbreaching party can:
(1) treat repudiation as breach,
(2) ignore and demand performance, or
(3) wait until date of performance and then sue for breach
Anticipatory Repudiation (UCC)
Unequivocal refusal of buyer/seller to perform or when reasonable grounds for insecurity arise and the other party fails to provide adequate assurances within reasonable time not to exceed 30 days
Retraction of Repudiation
Permitted if other party has not canceled the K or materially changed position
What contracts are subject to the statute of frauds?
Consideration of marriage, suretyship, cannot be performed within one year, sale of goods over $500, real property
Duress
A contract is voidable when it is established that a party’s manifestation of assent was induced by an improper threat that leaves the party no reasonable alternative
Expectation Damages
The normal measure of damages for breach of contract are expectation damages, which are intended to put the nonbreaching party in the same position as if the K had been performed
- Must be foreseeable and calculated with reasonable certainty
Punitive Damages
Generally not recoverable in breach of K action
Restitution
Party may be able to recover restitution for any benefit conferred by way of part performance in excess of the loss that he caused by his own breach
Mitigation
Generally, a party cannot recover damages for a loss that the party could have avoided through reasonable efforts
