contracts Flashcards
In a sentence or two, define an assignment.
An assignment occurs when a party to an existing contract transfers her rights under the contract to a third party.
When an assignment might materially change the contract, is an assignment permissible?
No, an assignment must not materially change the duty or materially increase the burden on the obligor.
In a sentence or two, describe the common law option contract.
An option contract is one where the offer includes a certain time period certain period of time where the offeror promised not to revoke the offer. For an option contract at common law, the offeree must give consideration for the offeror to keep the promise open, and the consideration should be memorialized in writing.
When are liquidated damages provisions enforceable?
Liquidated damages provisions are enforceable if they are reasonable, i.e. damages difficult to ascertain at time contract is made and the amount is a reasonable forecast of the projected losses.
After an anticipatory repudiation, the non-repudiating party has several remedies. List them.
The non-repudiating party has several remedies including (1) treating this as repudiation and suing immediately, (2) suspending performance and waiting to sue, (3) treating the repudiation as an offer to rescind the contract, or (3) to ignore the repudiation and urge performance.
What are the rights of a third-party intended versus incidental beneficiaries?
Where a third-party is not a party to the contract, they may still have a cause of action to sue and enforce the contract if they are an intended beneficiary. Whereas intended beneficiaries have rights to sue a breaching party, incidental beneficiaries do not have any rights to sue for breach of contract.
There are limited exceptions to when a contract covered by the Statute of Frauds may be enforceable as an oral contract. List these exceptions.
(1) Performance of a service contract; (2) there has been conveyance of real property, possession of the property or improvements to property; (3) delivery of goods or substantial performance of a specially made good
Where the buyer has goods and the buyer is in breach, what is the measure of seller’s damages?
The seller may recover the full contract price.
Does death or incapacity terminate the power to accept a contract?
Yes. If either the offeror or offeree dies or loses capacity, the power to accept an outstanding offer is terminated automatically.
What are “gap fillers?”
Under the UCC, gap fillers will supply missing terms to the contract. These may include price, place of delivery, time for shipment, and time for payment. Under the common law, the court may supply gap fillers on a reasonable basis.
Following a breach of contract, the injured party may be entitled to damages. These damages may be in the form of monetary or non-monetary relief. An award for damages may be limited. Describe when this may happen.
Concepts that limit or have the potential to limit recovery include: (1) the duty to mitigate damages; (2) foreseeability of the damages; (3) ability to calculate loss with reasonable certainty.
In a sentence, state the UCC rule for contract modification.
Under the UCC, a contract can be modified without additional consideration as long as it was sought in good faith.
Describe the “battle of the forms rule.”
The battle of the forms rule determines whether additional terms will be included as part of the contract. This depends on it one or both parties are merchants. If one or more parties is not a merchant, any additional terms is a proposal and will not become part of the contract unless the other party assents. Where both parties are merchants, the additional term automatically becomes part of the contract unless: the offer expressly limits acceptance to its terms; the addition is a material alteration, or if the offeror objects to the additional term within a reasonable time.
What is an accord?
An accord is an agreement where one party promises to render substitute performance and the other party promises to accept that substitute in discharge of the existing agreement. An accord suspends that original agreement until satisfaction.
When may a contract be unenforceable based on public policy reasons?
Contracts can be found unenforceable on grounds of public policy not only to protect one of the parties involved, but also because what the contract represents could pose harm to society as a whole.
When does the buyer have the risk of loss?
In a shipment contract or a F.O.B. as the seller’s place of business, the buyer has the risk of loss, i.e., the seller must get the goods to a carrier.
Contract formation requires offer, acceptance, consideration and a lack of formation defenses. List the formation defenses.
(1) Incapacity or Infancy; (2) Illegality; (3) Misrepresentation or Fraud; (4) Duress; (5) Unconscionability; (6) Misunderstanding; (7) Mistake; (8) Statute of Frauds.
Under the UCC, court consider the perfect tender rule in evaluating whether there was a material breach. What does perfect tender mean?
Perfect tender means that the seller’s performance must be perfect with respect to the goods delivered and the manner of delivery.
In a sentence, describe rejection of an offer.
Rejection by the offeree terminates the offer and the offeree’s power of acceptance.
In a sentence, define expectation damages.
Actual or expectation damages seek to put the nonbreaching party in the position he would have been in but-for the breach. Calculation of these damages aims to provide the nonbreaching party with the benefit of his bargain.
What is the warranty of title?
A warranty of title is implied in all sale of goods contracts. It conveys that the title conveyed is good and its transfer is rightful, and the goods shall be free from a security interest or encumbrance, unless the buyer has knowledge of such interest.
What is satisfaction (in the context of accord and satisfaction)?
Satisfaction is the performance of the accord which then discharges both the original agreement and the accord.
In a sentence, state what types of contracts are governed by the Uniform Commercial Code (UCC).
Article 2 of the UCC governs contracts for the sale of goods.
Making an offer requires the demonstration of three requirements. What does this include?
An offer requires a demonstration of intent to enter into a contract, definite and certain terms, and communication to the offeree. This creates the power of acceptance in an offeree, unless revoked.
When does a seller have the risk of loss?
In a destination contract or a F.O.B. as the buyer’s address, the seller has the risk of loss, i.e., the seller must get goods to buyer.
What is the defense of illegality?
A contract with an illegal subject matter is not enforceable. A contract with a legal subject matter but illegal purpose is enforceable by a party that did not know about the contract’s illegal purpose.
In a sentence or two, define promissory estoppel.
Where contract formation fails, promissory estoppel is a substitute for consideration. In order to avoid an injustice, courts will use promissory estoppel to enforce a promise without consideration if the promisor knew that the promissee would rely through action or forbearance on the promise that was made, the promisee relied or changed position based on the promise, and such reliance was to his detriment.
In a sentence or two, define an intended beneficiary.
An intended beneficiary is where one party contracts with another with the intention of benefitting a third party. This intent can be manifested by the contract or by some verbal expression by the contracting parties.
In a sentence, state the general rule for the Statute of Frauds.
The Statute of Frauds provides an important exclusion to the general rule in contract law that a contract need not be in writing and that oral and written agreements are equally enforceable. The Statute of Frauds requires that for a contract to be enforceable it must be in writing and signed by the party to be charged (i.e., signed by the party against whom enforcement is sought).
Under the UCC, conflicting terms will cancel each other out. What is the “knock out rule?”
The knock out rule provides that conflicting terms cancel each other out and neither enters a contract. The contract consists of the otherwise agreed upon terms, and the court will supply “gap fillers” as needed.
The perfect tender rule applies to contracts for single delivery. Does the perfect tender rule apply to installment contracts?
No, under an installment contract the buyer’s ability to reject goods due to improper tender is limited.
The cost of completion of a contract must take into account the doctrine of waste and diminution in value. Describe these concepts.
Where an award might be wasteful, such that the cost to restore would greatly exceed the difference in value, damages may be determined by the difference in value between the land as promised and its current value.
In a sentence, define counteroffer
A counteroffer is an offer made by the offeree to the offeror regarding the same subject matter as the original contract but containing different terms. A counteroffer is a rejection and new offer.
Describe how to determine whether an offeror had intent to enter into a contract.
An offer must convey a reasonable expectation to the offeree that the offeree is willing to enter into a contract. Language, conduct and context can help demonstrate a present intent to enter into a contract. Interpretation of intent is based on an objective reasonable person standard.
May a seller limit a buyer’s remedies for breach of warranty?
Yes, as long as the limitation is not unconscionable.
Does the common law every apply to aspect of a contract for the sale of goods?
Article 2 of the UCC applies to the sale of goods, although common law principles remain applicable when not displaced by the UCC. This typically arises on the MEE in the context of option contracts and firm offers.
What is the defense of impossibility?
Impossibility excuses both parties from their obligations under a contract if the performance has been rendered impossible by events occurring after the contract was formed. This typically arises due to destruction of the contracts subject matter, death or incapacity, or a contract that was legal at the time of formation, but now it is illegal.
In a sentence, define anticipatory repudiation.
An anticipatory repudiation arises when either party to a contract unequivocally communicates that he will not perform under the contract.
In a sentence, define when a demand for adequate assurances is appropriate.
Under the UCC, a party to the contract may demand adequate assurances if they have a reasonable belief that the other party will not be able to perform its obligations under the contract.
In a sentence, describe incidental damages.
A seller is entitled to incidental damages which include any commercially reasonable costs incurred as a result of the breach.
In a sentence or two, define an incidental beneficiary.
An incidental third-party beneficiary is a party who will benefit as a practical matter from the contract, but there is indication that a third party was an intended beneficiary to the contract.
Where a seller has goods and the buyer is in breach, how should the seller’s damages be calculated if the seller resold the goods?
The seller’s damages are the difference between the contract price and the resale price.
In a sentence, describe the parol evidence rule.
Under the parol evidence rule, a party cannot introduce extrinsic evidence of prior or contemporaneous agreements offered to contradict, vary, or modify an unambiguous writing which the parties intended to be a full and final expression of an agreement.
How does an effective assignment occur?
For an effective assignment to occur, the assignor must manifest the intent to transfer the rights to the assignee, and the assignee assents to the assignment.
The common law follows the “mirror image rule.” Define this.
Under the common law mirror image rule, an acceptance must mirror the offer’s precise terms. If the response adds or omits terms, the purported acceptance is a rejection and counteroffer.
Where goods fail to conform to a single delivery contract, the buyer has three choices. Describe them.
(1) The buyer may reject the whole in a reasonable time; (2) Accept the whole; (3) Accept part and reject the rest.
The buyer must pay for the goods he accepts and may seek damages for the seller’s imperfect tender.
There are six types of contracts that “fall within the Statute of Frauds” and are not enforceable unless they are in writing. List them.
Think MY LEGS
(1) a contract upon consideration of Marriage;
(2) a contract that will not be completed within one Year of the formation of the contract;
(3) a contract for the sale of an interest in Land;
(4) a contract of an Executor or administrator to answer for a duty of the decedent;
(5) a contract of Guarantee or suretyship; and
(6) a contract for the sale of Goods for $500 or more.
What is the defense of impracticability?
Impracticability occurs when the occurrence of an event that parties assumed would not occur makes performance extremely and unreasonably difficult.
What is the appropriate manner to raise a demand for assurances?
A demand for assurances must be made in writing.
In a sentence or two, describe the UCC firm offer.
Under the UCC a merchant’s firm offer states that an offer may be kept open without consideration if the party is a merchant, the offer to buy or sell is in writing, and the writing gives assurances that it will be held open.
Where a seller has goods and the buyer is in breach, how should the seller’s damages be calculated if the seller did not resell the goods?
The seller’s damages are the difference between the contract price and the market price.
Describe definite and certain terms.
An offer must contain definite and certain terms such that the context of the bargain can be determined and enforced. The essential terms of a contract include Quantity, Time of Performance, Identity of the Parties, Price and Subject Matter.
In a sentence or two, define consideration.
Consideration is a bargained-for exchange with legal value. This usually arises where a detriment induces a promise and a promise induces a detriment.
What is a fully integrated writing?
A fully integrated writing is a complete and final expression of the party’s agreement. A merger clause is an indication that the evidence is complete on its face and cannot be supplemented with additional consistent terms.
In a sentence, define a unilateral contract.
A unilateral contract exchanges the offeror’s promise for the offeree’s actual performance of the requested act.
Where the seller has goods and the seller is in breach, how should the buyer’s damages be calculated if the buyer covered?
The buyer’s damages are the difference between the contract price and the cover price.
Are there contractual limits on assignment?
Where there is no contractual provision prohibiting an assignment, contract rights are generally assignable. However, contracts may contain provisions prohibiting or invalidating assignments.
To satisfy the Statute of Frauds, the writing must include one specific term:
the quantity term. No other term is required.
Under perfect tender, what is the seller’s right to cure?
After a buyer has notified the seller of imperfect tender, the seller may have the opportunity to cure before performance is due. The seller can cure if the seller notifies the buyer of his intent to cure and the time for performance has not lapsed, and the seller had reasonable grounds to believe that the nonconforming goods that were sent would be acceptable.
The party demanding assurances, may suspend performance under the contract until:
assurances are received.
What is the defense of incapacity or infancy?
Minors or those with mental incapacity (not being of sound mind) lack the ability to contract. A person who lacked capacity may disaffirm the contract rendering it void. On the other hand, a contract may be ratified and enforced against someone who was a minor at the time of contracting but has since gained capacity and retained the benefit of the contract.
How long may a merchant’s firm offer be irrevocable?
A merchant’s firm offer can be irrevocable for no longer than three months without consideration.
Where a seller has goods and the buyer is in breach, how should the seller’s damages be calculated if the seller is a lost volume seller?
A lost volume seller can recover lost profits if the seller: (1) has a big enough supply to make both the contracted sale and the resale; (2) would have likely made both sales; and (3) would have made a profit on both sales.
In a sentence, describe the duty to mitigate damages.
All parties must mitigate damages or take reasonable steps to reduce the damages.
Is past consideration adequate consideration?
Past consideration cannot induce performance, so it is not considered valid consideration.
Describe acceptance by shipping goods, conforming and non-conforming.
Shipping conforming goods is an acceptance. The effect of shipping non-conforming goods depends on whether the seller acknowledges the nonconforming shipment.
Do preliminary negotiations give rise to an offer?
A preliminary negotiation lacks the present intent to contract.
What is a retraction of a repudiation and when may it occur?
A repudiating party may retract its repudiation before performance is due unless the non-repudiating party cancelled the contract, materially changed position in reliance on the repudiation, or otherwise indicated that the repudiation was final. The retraction may be made in any manner, oral or written, but it must provide adequate assurances of the intent to perform under the contract. Such a retraction reinstates the contract.
Under a unilateral contract, the offeror is bound only when:
the offeree completes performance. The offeree is never bound to perform because she has never promised to do so.
What is a “merchant’s memo?”
The UCC Statute of Frauds may be satisfied when two merchants enter an oral agreement and one of them sends the other a written confirmation of the agreement. In such a circumstance, the Statute is satisfied against the recipient merchant if the latter fails to object to the confirmation within 10 days of receipt.
Where the seller has goods and the seller is in breach, how should the buyer’s damages be calculated if the buyer did not cover?
The buyer’s damages are the difference between the contract price and the market price at the time the buyer learned of the breach.
When a minor enters into a contract for necessities are they legally bound?
Yes, minors are legally obligated to pay for necessities based on a quasi-contract theory.
What is the appropriate length of time for a party to provide assurances after a valid demand was made?
The party receiving a valid demand for assurances must provide the requesting party adequate assurances of performance within a reasonable time, not to exceed 30 days.
What is the implied warranty of merchantability?
Under the UCC, the implied warranty of merchantability requires states that a merchant selling goods warrants that the goods are fit for the ordinary purposes for which goods are used. Once a buyer discovers a breach of warranty, the buyer may sue for breach of contract.
In a sentence, describe punitive damages.
Punitive damages are awarded to punish wrongdoing, and are generally not available in a breach of contract action.
What is a partially integrated writing?
A partially integrated writing does not contain a complete statement of all of the terms the parties agreed to. Where the agreement is only partially integrated, a prior oral agreement is discharged only if it is inconsistent with the written agreement.
Where there is a promise to keep an offer open and involves the sale of goods but does not involve a merchant, do the rules for option contracts or firm offers apply?
Article 2 of the UCC applies to the sale of goods, although common law principles remain applicable when not displaced by the UCC. On the MEE, you should raise and dismiss the UCC merchant’s firm offer rule. Then, consider whether an option contract applies to the fact pattern.
Are advertisements considered offers?
Advertisements are considered invitations to deal and not offers to sell. An exception arises when an ad contains words of commitment and where the offeree can be identified with specificity
May a seller recover incidental or consequential damages?
The seller may recover incidental, but not consequential damages.
In a sentence, define the preexisting duty rule.
The preexisting duty rule provides that a promise to do something that one was already legally obligated to do will not provide consideration for a new bargain. The preexisting duty rule often arises in the context of contract modification.
Acceptance is subject to some limitations. List them.
(1) Acceptance must be within a reasonable time; (2) Only the person whom the offer is directed may accept; (3) The offeree must know of the offer before accepting; (4) An offer must be in the manner required by the offer, or if not specified by any reasonable means; (5) Acceptance by performance is judged by an objective standard.
There are two types of intended beneficiaries, creditor beneficiaries and donee beneficiaries. Define them.
A creditor beneficiary is a third party whom the promisor intends to benefit from the because the promisor owes him money. A donee beneficiary is a third party the promisee intended to give a gift.
What is an “accommodation” when shipping goods nonconforming goods?
When shipping nonconforming goods, if the nonconforming nature is acknowledged, this is an accommodation to the buyer and will not serve as an acceptance. The seller is making a counteroffer that the buyer is free to accept or reject.
May a buyer recover incidental or consequential damages?
The buyer may recover consequential and incidental damages.
What happens if there is a failure to provide assurances?
Failure to provide assurances may be treated as a repudiation of the contract.
There are four exceptions to the parol evidence rule. List them.
(1) Subsequent communications; (2) Contract formation defects (e.g., fraud, duress, etcetera); (3) Interpretation of Vague or Ambiguous Terms; (4) to Supplement a Partially Integrated Writing.
An offeror is free to revoke an offer any time before acceptance, even if he had expressly promised the offeree that he would hold the offer open. Under contemporary law, there are two ways to prevent revocation of an offer:
an options contract or a firm offer.
What are the basic rights and obligations of the parties after assignment?
The basic rule is that an assignee gets whatever rights to the contract his assignor had, and the assignee takes subject to whatever defenses the obligor could have raised against the assignor.
Can a merchant disclaim the implied warranty of merchantability?
Yes, but it must be done expressly and in conspicuous writing.
What is the defense of misrepresentation?
A misrepresentation may serve as a defense where one party makes a false assertion, concealment, or misstatement about a material fact prior to contract formation. The other party to the contract must justifiably rely on the misrepresentation. In this case, the contract is voidable.
Describe the requirement that an offer must be communicated.
An offer must be communicated to the offeree, such that the offeree has knowledge of the offer.
In a sentence, describe the offeror’s power of revocation.
Unless irrevocable, an offeror can revoke an offer at any time before acceptance which terminates the power of acceptance as long as the revocation is communicated to the offeree.
When an intended beneficiary is enforcing the contract, who may they sue: the promisor, the promisee?
An intended beneficiary can sue to promisor, but can only sue a promisee if the third-party is a creditor beneficiary
What is the mailbox rule?
The mailbox rule provides offers and acceptances become effective upon either dispatch or receipt. Generally, offers are effective upon receipt and acceptances are effective upon proper dispatch.
What is an implied-in fact contract?
An implied-in fact contract is created by the conduct of the parties, rather than through written or oral communication. A contract may be implied when the conduct was intentional and each party knows that the other party would interpret the contract as an agreement to enter into a binding contract.
In a sentence or two, define a divisible contract.
Divisible contracts are contracts in which each party’s performances are divided into matching pairs of duties. This is done so that a failure for the performance of one aspect of the contract will not necessarily result in a breach of the entire contract.
What is the defense of unconscionability?
Courts may decline to enforce a contract, in whole or in part, if it finds a term unfair to one party based on unfair bargaining o substantively unconscionable. This is assessed at the time of contract formation.
What is the difference between a bargain and a gratuitous promise?
A condition on a gratuitous promise does not satisfy the requirement of consideration. A condition is something a promisee must do to avail herself of the promisor’s benevolence.
In a sentence or two, define delegation.
Delegation occurs when a party to an existing contract appoints to a party all duties owed under the contract.
In a sentence, define a condition precedent.
A condition precedent is an event that must occur before performance of the other party is due. If it does not occur, then performance of the other party is excused.
What is the defense of mutual mistake?
A mutual mistake is one made by both parties to a contract about an underlying factual assumption at the time of contract formation. This contract is voidable by an adversely affected party if both parties are mistaken about a basic assumption of the contract, the mistake has a material effect on the deal, and the party seeking to avoid the contract did not assume the risk of mistake.
The modern rule is that an option contract is created once:
the offeree begins performance, and the offeror may not revoke.
What is the defense of duress?
A contract can be voidable on the basis of economic duress where a party’s assent was induced by an improper threat leaving no other reasonable alternative.
Describe direct and indirect revocation by the offeror.
Revocation of an offer may occur in several ways including when the offeror manifests the intention not to enter into the proposed contract. In most cases, this is a direct communication from offeror to offeree. However, some courts have held that revocation may be communicated to the offeree indirectly. This occurs when the offeree learns from a reliable source that the offeror has taken definite action that is inconsistent with an intention to enter into the proposed contract.
In a sentence, describe specific performance.
Specific performance is an equitable remedy and is only available if monetary damages are inadequate to compensate the injured party.
In a sentence, define acceptance.
An acceptance is the manifestation of assent to the terms of the offer.
There are a number of notable differences between the Common Law and UCC. These include areas of:
(1) Acceptance;
(2) Option Contracts / Firm Offers;
(3) Contract Modification;
(4) Substantial Performance versus Perfect Tender.
What are some exceptions to the mailbox rule?
1) Option Contracts are effective upon receipt; (2) if the offer stipulates acceptance is not effective until receipt, then the offer controls; (3) if both an acceptance and rejection were sent the first to arrive controls.
What is the implied warranty of fitness for a particular purpose?
An implied warranty of fitness for a particular purpose is created when:
(1) a seller knows or has reason to know of the buyer’s particular purpose for which the goods are required; and
(2) the buyer relies on the seller’s skill or judgment to select or furnish suitable goods.
In a sentence, describe reliance damages.
Reliance damages are awarded for losses suffered in reasonable reliance on a promise. This most often arises when the is promissory estoppel, or where there is a contract but expectation damages are to uncertain to calculate.
In a sentence, define an illusory promise.
An illusory promise is a promise to perform that is indefinite by leaving performance to the discretion of the promising party. This is an illusory promise and will not constitute consideration.
What factors do courts consider when evaluating whether there was a divisible contract?
To determine if a contract is divisible courts look at whether the performance of each party is divided into two or more parts under the contract, the number of parts due from each party is the same, and the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party. The underlying consideration in interpreting whether a contract is divisible is one of fairness.
In a sentence, define the requirements for the formation of a contract.
In order to have a valid contract, there must be mutual assent (offer and acceptance), consideration, and the lack of any formation defenses.
