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Business Law Redo > Contracts > Flashcards

Contracts Flashcards

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1
Q

Nature of Contracts

A
  • not every promise is legally enforceable
  • when a set of promises has the status of a contract, a person injured by breach of the contract is entitled to call on the government (courts) to force the breaching party to honor the contract
  • contract law is ancient law but has evolved to reflect social change (origin comes from Law Merchant)
  • original reason for contracts = morals (now it’s law economics aka efficient breach)
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2
Q

goals of contract law

A
  1. autonomy / certainty

2. fairness

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3
Q

elements of a contract

A
  1. agreement = offer and acceptance
  2. consideration = what each party is exchanging
  3. capacity = who can enter into contracts
  4. lawful object (aka illegality) = courts police the agreement
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4
Q

contract classification

A
  1. unilateral / bilateral
  2. express / implied
  3. executory / executed
  4. valid / voidable / void
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5
Q

unilateral vs bilateral

A
  • unilateral = 1 promise in exchange for performance (contract formed at the time of performance)
  • bilateral = 2 promises in exchange for each other (contract formed at the time of the promise)
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6
Q

express vs implied

A
  • express = expressly stated (oral, written, etc.)

- implied = implied in fact from the circumstances

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7
Q

executory vs executed

A
  • executory = 1 or both sides have not performed; contract not complete
  • executed = contract complete
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8
Q

valid vs voidable vs void

A
  • valid = can be enforced
  • voidable = 1 or both parties has a reason to void the contract
  • void = can’t be enforced
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9
Q

sources of contract law

A
  • common law
  • Uniform Commercial Code (sale of goods only)
  • Convention on the International Sale of Goods (CISG)
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10
Q

code

A

collection of statues

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11
Q

UCC: Sale of Goods

A
  • goods = tangible, movable, personal property
  • DOES NOT APPLY TO sale of services, intangible property (patents, copyrights, stock, intellectual property), land/real estate
  • mixed sale situation (2 tests: predominate factor test or gravament test)
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12
Q

predominate factor test

A
  1. language of contract
  2. nature of business
  3. reason for the contract
  4. cost breakdown (invoice breakdown into goods vs services)
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13
Q

non-contract duties

A
  1. quasi-contract

2. promissory estoppel

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14
Q

quasi-contract

A
  • quasi = “as if” or “like” or contract implied in law

- prevent unjust enrichment

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15
Q

Pass v. Shelby Aviation case

A
  • Pass crashed his plane and passed away after taking it to Shelby
  • P sues D
  • D files for motion to dismiss
  • trial court sides with P
  • D appeals
  • appellate court uses predominate factor test
    1. language of contract = plane brought in for repair and inspection (SERVICE)
    2. nature of business = maintenance, service, storage of aircraft (SERVICE)
    3. reason for the contract = inspection (SERVICE)
    4. cost breakdown = charges for goods vs services
  • P says that goods were 75% of cost because they included labor
  • D says goods were 37% without including labor
  • based on predominate factor test, appellate court determines that contract was for service and reverses trial court’s decision
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16
Q

Hurdis v. Town of North Providence

A
  • Hurdis had sewer blockage and hires contractor to determine where blockage is
  • Hurdis notifies town that blockage is on government property
  • town does nothing and Hurdis pays for repairs himself
  • Hurdis sues for reimbursement
  • town benefited from Hurdis fixing sewer bloackage
  • town knew Hurdis was fixing it because they gave him a permit
  • lawsuit about unjust enrichment b/c town was using Hurdis
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17
Q

promissory estoppel elements

A
  1. promise
  2. reasonable reliance
  3. actual reliance
  4. injustice
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18
Q

contract theories

A
  • contract = voluntary agreement, enforceable promise
  • quasi-contract = unjust enrichment, reasonable value of services
  • promissory estoppel = foreseeable reliance, enforce promise or recover reliance losses
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19
Q

performance and remedy

A
  • breach of contract = material breach vs non-material breach (substantial performance which is a minor breach)
  • factors = magnitude of breach, good faith, timing, extent that injured party compensated by damages
  • did breach deprive party of reasonable expectation?
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20
Q

anticipatory breach and excuses

A
  • anticipatory breach occurs if a party indicates the party is unwilling or unable to perform
  • excuses for non-performance = impossibility (death, supervening illegality, destruction of subject matter) & impracticability (usually lose money under contract and risk was foreseeable)
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21
Q

“force majuere”

A

superior force

  • through no fault of my own, I’m not responsible
  • this clause in a contract prevents the need to go to court
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22
Q

remedies for breach of contract (all remedies are stackable)

A
  • equitable remedies = specific performance (court order to have performance completed instead of getting damages) or injunction (stop order)
  • restitution
  • legal remedies = compensatory damages, nominal damages, liquidated (contractual) damages, punitive damages (not usually asked for unless it was their intent to harm you with the breach)
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23
Q

compensatory damages

A
  1. expectation interest (loss of value of performance the plaintiff expected) or reliance interest (losses suffered in reliance on other party promise)
    - seller failed to perform = difference in contract price and market price
    - seller defective performance = difference in value as warranted and value in defective condition
  2. consequential / special damages = lost profits due to foreseeable risk
  3. incidental = damages after breach to avoid future loss
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24
Q

limitations on legal remedies

A
  • reasonable certainty
  • foreseeable (from the breaching party)
  • duty to mitigate
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25
Q

the agreement => offer

A
  • offer = a promise conditional on an act, return promise or forbearance (refraining from doing something)
  • offeror = makes the offer
  • offeree = receives the offer
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26
Q

3 elements to an offer

A
  1. intent to enter binding agreement
  2. terms must be definite
  3. offer must be communicated to the offeree
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27
Q

intent

A
  • objective theory
  • would a reasonable person judge the offeror’s words and acts in the context of the circumstances to signify intent?
  • NOT obviously joking, haggling, equivocating
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28
Q

definiteness of terms

A

Common Law

  • parties, price, subject matter, quantity, time of performance
  • policy = identify breach and give remedy

UCC

  • open terms are ok
  • gap filling rules
  • policy = reasonably certain basis to provide a remedy
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29
Q

terminator of the offer

A

Action of the Parties

  • revocation = offeror may do this any time before acceptance
  • rejection & counteroffer = offeree

Operation of Law

  • lapse of time
  • death / insanity of either party
  • destruction of the subject matter
  • interviewing illegality
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30
Q

acceptance

A
  • manifestation of assent to the terms (of the offer) made by the offeree in the manner invited or requested by the offer
  • only offeree may accept offer
  • offeror may specify manner
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31
Q

acceptance factors

A
  • intent to enter agreement (objective)
  • on the same terms as offer = “mirror image” rule; UCC battle of the forms
  • communication to offeror = silence is not acceptance unless stated; any reasonable means unless stipulated by offer; mailbox rule
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32
Q

advertisements

A
  • general rule = not offers (but are invitations to offer or negotiate)
  • ex: flyers, handbills, catalog listing prices, “for sale” ads in newspaper or yard
  • sales puffery is not an offer
33
Q

consideration

A

Elements

  1. legal value
  2. bargained for exchange
34
Q

consideration element: legal value

A
  • ex: payment of $ or property, refrains from doing something the person has the legal right to do, does something the person had no prior legal duty to do
  • courts will NOT judge adequacy
  • not a gift
35
Q

consideration element: bargained for exchange

A
  • causation

- “quid pro quo” = this for that

36
Q

exchanges not consideration

A
  • illusory promises = one or both sides choosing not to perform
  • ex: I’ll sell you my textbook unless someone else buy it
  • cancellation clauses
  • pre-existing duties = already doing something
  • past consideration = task has been done
37
Q

writing

A
  • general rule = oral contracts are enforceable EXCEPT what is stated in Statute of Frauds

Covered Contracts

  • collateral contracts
  • contracts for real estate
  • contracts for more than 1 yr
  • contracts for sale of goods of $500 +
  • executor’s promise = has to be in writing; executor promises to pay the creditor of the deceased out of their own personal funds
  • marriage as consideration = prenup has to be in writing
38
Q

collateral contract

A
  • a person (guarantor) promises to perform an obligation of another person (principal debtor) to a third person (obligee)
  • unless “main purpose” or “leading object” is to obtain personal economic advantage
39
Q

land contracts

A
  • real property
  • contracts for interests in real estate
  • leases of more than 1 yr and certain easements on real property
  • 2 exceptions = seller fully performed & buyer reasonably relied on the contract to his/her detriment
40
Q

contracts more than 1 yr

A
  • bilateral contracts that cannot be performed within a year from the date of contract formation (when promises are exchanges)
  • EXCEPT full performance by one party
41
Q

sale of goods contracts

A
  • UCC 2-201 = contracts for sale of goods of $500+

- includes agreements to modify existing sales contracts if contract as modified is for a price of $500+

42
Q

writing requirement (common law)

A
  • need not be made at the same time the contract comes into being (can be before or after)
  • can be multiple papers, receipts, etc.
  • contents = identity of parties, subject matter identified with reasonable certainty, signed by the party to be charged (initials acceptable)
43
Q

UCC writing requirement

A
  • writing must be sufficient and indicate quantity of goods to be sold
  • sufficient writing:
    1. confirmatory memorandum between merchants
    2. part payment or past delivery
    3. admission in pleadings or court
    4. specially manufactured goods
44
Q

failure to satisfy Statute of Frauds

A
  • unenforceable

- BUT potential recovery under quasi-contract or promissory estoppel

45
Q

contract interpretation

A
  • construed against drafter = penalize drafter for not making it clearer
  • specific over general
  • handwritten over form
  • terms given meaning per trade usage
46
Q

5 doctrines that permit people to avoid their contracts because of the absence of real consent

A
  1. misrepresentation
  2. fraud
  3. mistake (bilateral and unilatearl)
  4. duress
  5. undue influence
47
Q

effect of doctrines: voidable

A
  • person claiming non-consent has power to rescind (cancel) the contract
  • person claiming non-consent must not act in a manner to ratify (affirm) the contract
48
Q

fraud / innocent misrepresentation elements

A
  1. untrue assertion
  2. of fact (not opinion)
  3. fact was innocent and material or fraudulent
  4. reliance on the assertion
  5. reliance was reasonable
  6. economic harm (need this to sue in tort (deceit) for damages)
49
Q

scienter

A

knew something was false and made a statement to get someone into a contract

50
Q

mistake: bilateral and unilateral elements

A

Mutual (aka bilateral)

  1. basic assumption
  2. material effect on exchange
  3. party harmed did not bear the risk of mistake

Unilateral
4. caused or had reason to know of mistake OR unconscionable to enforce contract

51
Q

duress elements

A
  1. wrongful threat or act that coerces a person to enter or modify a contract (physical, emotional, or economic harm)
  2. victim must have no reasonable alternative but to enter the contract
52
Q

undue influence elements

A
  1. relationship of trust and confidence or dominance (fiduciary relationships)
  2. unfair persuasion
53
Q

capacity

A

a person must have the ability to give consent before he can be legally bound to an agreement, thus capacity is the ability to incur legal obligations and acquire legal rights

54
Q

groups that lack capacity

A
  1. minors
  2. mental disability
  3. intoxicated
55
Q

minor’s right to disaffirm

A
  • voidable by minor only
  • express or implied
  • exceptions by statute (i.e. marriage)
  • exculpatory clauses by parents not usually valid
  • reasonable period of time after age of majority (usually majority is 18)
56
Q

ratification

A

a person who reaches majority (usually 18) indicates that he/she intends to be bound by a contract made as a minor

57
Q

duties upon disaffirmance

A
  • return any consideration (money, goods, etc.) to each other
  • if the consideration given by the adult has been lost, damaged, destroyed, or depreciated in value, courts are split on whether the minor party must make restitution to the adult party
  • misrepresentation of age? => courts are split
  • minors pay responsible value for necessities (essential for existence such as food, clothing, shelter; parents will not provide)
58
Q

mental impairment

A
  • did the person understand what the contract is talking about?
    OR
  • was the person unable to act in a responsible manner regarding the contract and the other party knew it?
59
Q

intoxicated persons

A
  • person is unable to understand the nature of the bargaining process
    OR
  • other party has reasonable knowledge to know the other person was under the influence
60
Q

illegality

A
  • an illegal agreement involves an act or promise that violates a law or is against public policy (even if there is consent and agreement)
  • ex: 2 people agreeing to rob a bank
  • ex: 2 people agree to rob country visitors, one takes off with all of the profits and sues for breach of contract, the judge kicks them out of the court and won’t enforce anything
61
Q

3 illegality elements

A
  1. agreement violates statute (2 ways = statute declares agreement is illegal or agreement frustrates purpose/policy of the statute)
    - ex: encouraging/committing a crime or violence
  2. agreements that violate public policy per the courts (types = agreements in restraint of competition, non-compete agreement, exculpatory clauses, immoral agreements)
  3. unconscionable contracts
62
Q

non-compete agreement elements

A
  1. ends = serve legit business purpose (customer base, trade secrets)
  2. means = no greater than necessary to protect interest (time is usually 2yrs and geographical area)
  3. no undue hardship (should not burden someone)
63
Q

exculpatory clauses

A
  • not void if intentional (negligence is valid)

- procedural = bargaining process (how you enter the contract)

64
Q

effect of illegality = void

A
  • leaves parties where they currently are during the agreement (even if one party has already performed)
65
Q

employment laws (deals with job security)

A
  • employment at will role = either party can terminate an employment contract to indefinite duration for good cause or no cause
  • common law exceptions:
    1. public policy (most states recognize)
    2. implied covenant of good faith and fair dealing (few states recognize)
    3. employment promises (satisfy contract requirement)
66
Q

types of warranties

A
  1. express warranty
  2. implied warranty of merchantability
  3. implied warranty of fitness for a particular purpose
  • source of law for warranty is now UCC
  • can’t have a warranty UNLESS there’s a contract
67
Q

express warranty: 2 requirements

A
  1. affirmation of fact or promise regarding goods or description of goods, or sample or model
  2. that become part of the basis of the bargain (the reason for the buyer to enter the contract)
68
Q

implied warranty: merchantability

A
  • “merchant” with respect to goods of the kind sold

Criteria

  1. pass without objection in the trade
  2. be of even kind, quality, and quantity within each unit
  3. be adequately contained, packaged, and labeled
  4. conform to any promises or statements of fact made on the container or label
  5. in the case of fungible goods, be of fair average quality
  6. be fit of the ordinary purpose
    - do the basic thing it’s supposed to do
    - consumer expectation test
69
Q

implied warranty: fitness for a particular purpose

A
  1. seller has reason to know buyer’s particular purpose
  2. seller has reason to know that buyer was relying on seller’s skill or judgement for the selection of suitable goals
  3. buyer did rely
70
Q

warranty disclaimer of damages

A
  • can disclaim if clear (i.e. “as is”)

EXCEPT

  1. unconscionable
  2. fails of its essential purpose (i.e. seller cannot repair or replace within a reasonable time)
71
Q

doctrine of strict liability

A
  1. reinstatement of torts -> seller sells dangerous product
  2. liability without fault -> applies only to merchants and products
  3. chain of distribution -> manufacturers, distributors, wholesalers, retailers, lessors
  4. parties who can recover -> consumers, employees, family, guests, customers
  5. damages recoverable -> property and punitive damages
72
Q

congress power: interstate commerce clause

A
  1. channels of interstate commerce (roads, canals, etc.)
  2. instrumentalities of interstate commerce (trucks, boats, etc.)
  3. intrastate activities that “substantially affect” interstate commerce
73
Q

dormant commerce clause

A
  1. undue burden

2. discriminatory

74
Q

“rights” = ends-means test

A
  1. strict scrutiny
    ends = compelling
    means = necessay
  2. intermediate scrutiny
    ends = important
    means = substantially related
  3. rational basis
    ends = legitimate
    means = reasonable
75
Q

categories of speech

A
  • fully protected (strict scrutiny) = political speech, other non-commercial speech
  • unprotected (rational basis) = obscene speech, fighting words, child pornography
  • limited protection (intermediate scrutiny) = commercial, offensive
  1. substantial government interest
  2. direct advancement of the interest
  3. no more extensive than necessary
76
Q

classification of speech: commercial or not?

A
  1. speaker = commercial
  2. intended audience = actual or potential customers
  3. content of the message = representations of fact of a commercial nature
77
Q

equal protection clause categories

A
  • strict scrutiny = race, national origin, or fundamental right (travel, vote)
  • intermediate scrutiny = sex/gender, illegitimacy
  • rational basis = economic and social relations
78
Q

takings clause (eminent domain)

A
  • property (real, personal, contract)
  • taking (even regulatory takings)
  • public use (develop government owned facility, construct improvements to which the public would have broad access, further meaningful public purpose)
  • just compensation
79
Q

analytical framework (constitutional law)

A
  1. does government have the power to act pursuant to the Constitution?
    - federal = find power
    - state = check for limitation
  2. does government action violate any constitutional rights

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