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Contracts Flashcards

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1
Q

Contract

A

Legally enforceable agreement

Express contract: Created by the parties’ words - oral or written

Implied in fact contract: Created by their conduct

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2
Q

Quasi-contract

A

Restitution

Protects against UNJUST ENRICHMENT whenever contract law yields an unfair result

Remedy of last resort

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3
Q

Bilateral contract

A

An offer can be accepted in any reasonable way - i.e. offer is open as to the mode of acceptance (starting performance, giving a return promise, etc.)

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4
Q

Unilateral contract

A

An offer can be accepted only by performing

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5
Q

Offer

A

A manifestation of an intention to be bound - as judged by a reasonable person/objective standard

Ads are not offers unless there is a quantity

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6
Q

Offer - indefinteness

A

Open price term in sales contracts: Courts will read in a “reasonable price” for sale of goods but not in common law

Requirements contracts - Article 2: UCC says you can have valid offers/contract seven though we don’t know quantity exactly at the outset

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7
Q

Termination of an offer - methods

A

4 methods:

  1. Lapse of time
  2. Revocation
  3. Rejection
  4. Death
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8
Q

Termination of offer - Lapse of time:

A

An offer lapses after a stated term or after a reasonable time has passed

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9
Q

Termination of offer - Revocation

A

General rule: An offer can be revoked at any time before acceptance; the offer terminates when the offeror revokes the offer

Direct revocation: The offeror indicates directly to the offeree that he has changed his mind about entering the deal

Indirect revocation: The offeror engages in conduct that indicates she’s changed her mind and the offeree is aware of the conduct

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10
Q

Exceptions where an offer cannot be revoked:

A
  1. Option - A promise to keep the offer open that is paid for
  2. Firm offer - In a sale of goods, if a merchant promises in signed writing to keep an offer open, then the offer is irrevocable for the state period. if no period is stated, it’s irrevocable for 3 months
  3. Foreseeable reliance before vs. after acceptance
  4. Starting to perform a unilateral contract
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11
Q

Timing of revocation

A

A revocation is effective upon receipt - no mailbox rule

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12
Q

Termination of offers: Rejection of offers

A

An offer terminates when the offeree rejects it. Rejection may be through:

  1. Counteroffer
    - Operates as a rejection but “mere bargaining” does not
  2. Conditional acceptance
    - Operates as a rejection and counteroffer
  3. Acceptance adding terms/varying offer
    - Common law: Acceptance must mirror the offer (Mirror image rule) - if the offeree adds terms, it’s a rejection
    - UCC: The offeree’s adding or changing a term doesn’t prevent acceptance under Article 2; Offeree’s terms are included only if: (1) Both parties are merchants; (2) Not a material change; and (3) No objection to it within a reasonable time
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13
Q

Termination of offer: Death

A

Death of either party before acceptance terminates a revocable offer
- BUT it doesn’t automatically terminate a contract or an irrevocable offer

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14
Q

Acceptance

A

Language of the offer controls the manner of acceptance

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15
Q

Starting performance as acceptance

A
  1. Bilateral contract: Starting performance is acceptance and carries with it an implied promise to finish the job
  2. Unilateral performance: Starting performance is NOT acceptance; only completing performance is acceptance
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16
Q

Improper performance as acceptance

A

Improper performance = simultaneous acceptance AND breach

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17
Q

Offeree’s silence as acceptanc

A

General rule: Silence is not acceptance

Exception: Customs between parties

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18
Q

Timing of acceptance

A

General rule:
Acceptance is effective when mailed - mailbox rule

Exceptions to mailbox rule:

  • Offer states otherwise
  • Irrevocable offer –> No mailbox protection (ex. option contracts)
  • Rejection sent first, then acceptance –> whichever arrives first will prevail
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19
Q

Consideration

A

Bargained for legal detriment/benefit

Can be a promise in exchange for a promise, performance, or forbearance

Past consideration is not consideration

Adequacy of consideration is irrelevant

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20
Q

Contract modification and consideration

A

Common law: New consideration is required to modify a contract; performing a preexisting duty is not enough –> Preexisting duty rule

Sale of goods: Need no consideration; consideration is not required to modify a contract for the sale of goods, but you must have good faith

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21
Q

Debt and consideration

A

Partial payment of a debt that is due and undisputed - not consideration

Time-barred debt as an exception to the consideration rule:
A written promise to pay a debt, collection of which is barred by SOL, is enforceable even without consideration

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22
Q

Promissory estoppel as a substitute for consdieration

A

Foreseeable reliance may make a promise enforceable, even without consideration

Promissory estoppel may only exist where there is no consideration

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23
Q

Defense: Lack of capacity

A

Categories:

  1. Minors (under 18)
  2. Intoxicated
  3. Mentally incompetent

General rule: An incapacitated defendant has the right to disaffirm the contract

Implied affirmation after gaining capacity if there is no disaffirmation within a reasonable time

The exception to incapacity defense: An incapacitated party is liable for necessaries (e.g. food, shelter, clothing, medical care) but only for their reasonable price, not the contract price

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24
Q

Defenses: Ambiguity/misunderstanding

A

If both parties have materially different understandings, there is no meeting of the mind. Both interpretations must be reasonable and there must be no other reason for the other party to know of the ambiguity

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25
Q

Defenses: Mistake

A

Mutual mistake about a material fact:

  • If mistake about the existence of the subject matter, relief may be granted
  • If mistake about the value of thing they bargained over, the contract may be enforced

Unilateral mistake: Courts consider the assumption of risk usually and don’t grant relief, unless the non-mistaken party knew of the mistake

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26
Q

Defenses: Unconscionability

A

Originally applied only to the sale of goods, but now is a part of contracts law generally and empowers a court to refuse to enforce all or party of an agreement

Two basic tests:

  1. Unfair surprise
  2. oppressive terms

Tested as of the time the agreement was made

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27
Q

Defenses: Duress

A

Economic duress includes:

  1. One party making an improper or wrongful threat
  2. One party with no reasonable alternative
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28
Q

Defenses: Statute of Frauds

A 
Applies to MYLEGS 
M - Marriage
Y - Year long
L - Legs
E - Executor
G - Goods over $500
S - Surety

Contracts must be in writing

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29
Q

Statute of Frauds - Marriage

A

Contracts in consideration of marriage are subject to SOF but not a promise to marry

30
Q

Statute of Frauds - Year

A

Contracts which cannot possibly be completed in 1 year or less are subject to SOF

31
Q

Statute of Frauds - Equal dignity rule

A

Authorization to enter into contracts for someone else must be in writing only if the subject matter of the contract is subject to the SOF

32
Q

Statute of Frauds - Executor

A

Promises by Executor of an estate to pay the estate’s debts from some other source of funds/out of his own pockets are within the SOF

33
Q

Statute of frauds - Suretyship

A

A promise to answer for (i.e., guarantee) the debt of another person

34
Q

Contract modification and interaction with SOF

A

The modification must be in writing only if the contract as modified (not the original contract) is within the SOF

35
Q

Adequate writing to satisfy the SOF

A

Depends on the nature of the contract

Sale of goods - Article 2:
- Must contain a quantity and be signed by party to be charged with breach

Common law
- Writing must have all material terms and be signed by the defendant

36
Q

Exceptions to the SOF

A

Carved out where there is less of a chance of fraud

  1. Land sale/real property exceptions to SOF
    - Leases of one year or less
    - Part performance of real estate sale - needs 2 out of the 3
    (1) Some payment
    (2) Possession
    (3) Improvements
  2. Full performance of service contract satisfies the SOF but part performance does not
  3. Sale of goods for $500 or more
    - Goods accepted or paid for by buyer
    - Custom made goods - Need to show a substantial beginning to satisy SOF
    - Judicial admission - If a def admits under oath that she had a deal, then she will lose her SOF defense
    - Merchant’s confirmatory memo - One party can use its own signed writing to satisfy the SOF against the other party if:
    (1) Both parties are merchants
    (2) Writing claims agreement and has quantity; and
    (3) There’s no written objection within 10 days
  4. Suretyship: the ‘main purpose’ exception takes us outside the SOF

Other defenses:

  • Illegality
  • Fraud
  • Misrepresentation `
37
Q

Terms - Parol evidence

A

Parol evidence rule: Keeps out evidence of a prior or contemporaneous agreement - either written or oral - that contradicts the later writing

Exceptions:

  1. To correct a clerical error
  2. To establish a defense against formation
  3. To interpret a vague or ambiguous term - parol evidence is okay
  4. To add a partially integrated writing (e.g. a final statement of the terms included, but not a complete statement of all terms agreed to)

For later events, the parol evidence rule is irrelevant –> thn, it’s is there new consideration

38
Q

Conduct as a source of terms

A

In order of importance:

  1. Course of performance - How parties performed under previous installments of THIS contract
  2. Course of dealing - What parties did under PRIOR contracts with each other
  3. Usage of trade - what others in the trade do in similar contracts
39
Q

Terms - Seller’s warranties of quality in a sale of goods

A

Express waranty: Describe the goods, promise facts about the goods, showing a sample or model, but not an opinion

Implied warranties in sale of goods cases:

  1. Implied warrant of merchanability
    - The goods are fit for their ordinary purpose
    - Must be a seller who is a merchant that deals in goods of the kind
  2. Implied warrant of fitness for a particular purpose
    - The goods are fit for buyer’s particular purpse
    - Must be a seller who knows buyer has a special purpose and is relying on seller to select suitable goods
40
Q

Terms - Limitation on wararnty liability in a sale of goods

A

Disclaimers: A seller can disclaim implied warranties, but not express warranties

Limitation of buyer’s remedies:

  1. General rule: Seller can limit buyer’s remedies for breach of any warranty (express or implied) as long as the limitation is not unconscionable
  2. Exception: Limiting buyer’s remedies for personal injury in the case of consumer goods is presumed to be unconscionable
41
Q

Risk of loss in a sale for goods

WHen goods are damaged before buyer gets them and neither buyer nor seller is to blame, who bears the risk of loss?

A

If seller bears risk: Seller must provide new goods to buyer for no additional cost or be liable for breach

If buyer bears risk: Buyer must still pay the contract price even though goods are destroyed

Heirarchy:
1. Agreement allocates risk - the agreement of the parties controls

  1. Breach - breaching party bears risk
  2. Delivery by common carrier (UPS, Amtrack, etc.) - Risk of loss shifts to buyer when seller completes its delivery obligations
    - 1st possibility: Shipment contract - seller must get the goods to a common carrier, make delivery arrangmenets and notify buyer
    (FOB followed by seller’s city)
    - 2nd possibility: Destination contract - seller must get the goods all the way to a specific desination (usually where buyer is located)
    (FOB followed by any other city)
  3. Non-carrier cases (e.g. buyer picks up or delivers the goods) Risk of loss depends on whether the seller is a merchant
    - Merchant seller: Seller bears risk of loss until buyer takes possession of the goods
    - Non-merchant seller: Risk of loss passes sooner - buyer bears the riks of loss once seller tenders the goods (e.g. makes them available to the buyer)
42
Q

Performance of common law contracts

A

Performance does NOT have to be perfect

SUBSTANTIAL PERFORMANCE is all that is required

43
Q

Performance of contracts for a sale of goods - Perfect tender rule

A

Seller must deliver perfect goods in the right place at the right time

If tender is not 100% perfect, buyer has the right to reject the goods

44
Q

Performance of contracts for a sale of goods - Option to cure (a second chance)

A

A seller who fails to make perfect tender may have an option to cure

Whether seller has that option usually depends on whehter the time for performance has expired

If time has not expired - seller has the option to cure

If time has expired - seller does not have the option to cure unless there is reasonable grounds for thinking that her improper tender would have been acceptable

45
Q

Performance of contracts for a sale of goods - Installment contracts - substantial impairment rule, not perfect tender

A

Installment contracts: Requires or authorizes seller to deliver in seperate installments

Rejection under installment contract - perfect tender rule DOES NOT apply to installment contracts, so it’s harder for the buyer to reject

Buyer may reject only for substantial impairment

46
Q

Performance of contracts for a sale of goods - Buyer’s acceptance of the goods

A

Implied acceptance: Buyer keeps goods after having an opportunity to inspect them

Consequence of buyer’s acceptance: Once buyer accepts, it’s too late for buyer to reject. BUT buyer can still get damages for seller’s breach

47
Q

Performance of contracts for a sale of goods - Buyer’s revocation of acceptance of the goods

A

General rule: A buyer cannot revoke acceptance of goods

Exception: If the non-confirmity substantially impairs the value of the goods and was difficult to discover (i.e. it was a latent defect), the buyer can revoke acceptance of the goods

48
Q

Performance of contracts for a sale of goods - Consequence of rejection/revocation of acceptance

A

Return: Buyer can return the goods at seller’s expense

Refund: Buyer can get back any money buyer has paid

Damages: Buyer can get damages for breach of contract

49
Q

Performance of contracts for a sale of goods: Buyer’s obligation to pay

A

Cash unless otherwise agreed

A check is okay, but seller can refuse it. But that gives buyer an additional reasonable time to come in with the case

50
Q

Excuse for nonperformance - Other party’s breach

A

May provide an excuse depending on the nature of the contract

Sale of goods - Art. II: If seller’s performance is not perfect in every respect, buyer has three options:
1. Reject all
2. Accept all
3. Reject some and accept the rest
Whichever option buyer chooses, buyer can still get damages

Common law contracts:

  • Damages - Injured party can recover damages for ANY breach of contract, whether the breach is material or not
  • Excuse - But only a MATERIAL breach provides an excuse to suspend innocent party’s performance
51
Q

Excuses for non-performance: Anticipatory repudiation

A

Provides an excuse unless the repudiation is tretracted prior to the other party relying on it

52
Q

Excuses for non-performance - Failure to give adequate assurance

A

A party with reasonable grounds for being insecure about another party’s performance may, in writing, request adeqaute assurace that the other party will perform in accordance with the contract

If the insecure party does not receive adequate assurances, they may treat it as anticipatory repudation and be excused from obligations under the ocntract

53
Q

Excuse for non-performance: A later agreement excusing oral obligations

A

Recission: A mutual agreement to cancel the contract

Modification: An agreement to replace an existing contract with a new one; a modification takes effect immediately and excuses original obligations immediately

Accord/satisfaction: An accord is an agreement to accept a different performance in future satsifaction of an existing duty
- the duty is suspended by the accord but is not excused until the accord is satisfied (performed)

Novation: An agreemen to substitute a new party for an existing one

54
Q

Excuse for non-performance: Impossibility as an excuse

A

A later unforeseen event that makes performance impossible may provide seller with an excuse.

Under Article 2, the doctrine is called IMPRACTICABILITY

A destruction of something necessary for performance:

  • Common law: Destruction of subject matter of contract provides an excuse for nonperformance
  • Sale of goods: Same rules, but two trick questions:
    1. Risk of loss: A seller who bore risk of loss when goods were damaged or destroyed is excused by impracticability
    2. Unidentified goods: Seller is excused only if teh goods that were damaged or destroyed had been identified in the contract
55
Q

Excuse for non-performance: Death/incapacity of essential person as an excuse due to impossibility

A

Not just any person; must be someone special or essential for performance

56
Q

Excuse for non-performance: Supervening governmental regulation

A

This is an excuse due to impossibility

57
Q

Excuse for non-performance: Increase in the cost of seller’s performance

A

This is NOT an excuse

58
Q

Excuse for non-performance: Frustration of the buyer’s primary purpose

A

If the central purpose of the contract is undermined and if both parties understood the central purpose of the contract, there is an excuse for non-performance

59
Q

Excuses for non-performance: Failure of an express condition

A

Language in a contract limits obligations created by other contract language but does not create an independent obligation

Rule: Strict compliance required with express conditions

Satisfaction clauses: Satisfaction is measured by a reasonable person standard unless the ocntract deals with art or matters of personal taste

Types of express conditions:

  1. Condition precedent - An event that must occur BEFORE performance is due
  2. Condition subsequent - An even that CUTS OFF an existing duty

Excusing a condition:
Occurence of a condition may be excused by the later action or inaction of the person protected by the condition
a. Failure to cooperate means you forfeit the protection
b. Waiver means you voluntarily give up the protection

60
Q

Non-monetary remedies: Specific performance

A

An equitable remedy, available only if monetary damages are inadequate to compensate the injured party

Availability of specific performance depends on the nature of the contract

  1. Real property/land sale - Specific performance is generally available because real property is considered unique
  2. Sale of goods (Art. 2) - Specific performance is available only if the goods are unique or there are other proper circumstances (e.g. an inability to buy similar goods in the market)
  3. Personal service contracts - Specific performance is not avialable in service contracts, but injunctive relief may be
61
Q

Non-monetary remedies: Unpaid seller’s rights to reclaim goods

A

General rule: Not available under Article 2

Exception: If buyer was insolvent when it received the goods and seller makes a demand within 10 days after buyer received them

Exception: Seller can reclaim goods at any time if buyer misrepresented its solvency to seller in writing within three months before delivery

62
Q

Monetary remedies - Expectation damages

A

Purpose: Put an injured party in as good a position as full performance - compensate for lost expectation

Expectation damages are the general rule

Sale of goods damages - Award expectation

Buyer’s damages if seller breaches - 3 options:

  1. Cover damages = Cover price minus original contract price
    - Used if buyer covers in good faith
  2. Market damages = Market price minus contract price
    - Used if buyer doesn’t cover in good faith or doesn’t cover at all
  3. Loss in value = Value as promised minus value as delivered
    - Used if buyer keeps non-conforming goods

Seller’s damages if buyer breaches - 4 options:

  1. Resale damages = contract price minus resale price
    - If seller resells in good faith
  2. Market damages = contract price minus market price
    - If seller does not resell in good faith or does not resell at all
  3. Contract price - if seller cannot resell goods
  4. Lost profit - If seller is a lost volume dealer
63
Q

Monetary damages - Unavailable

A

Punitive damages not available - Not awarded for breach of contract bc the purpose of contract damages is to compensate, not to punish

64
Q

Monetary damages - Liquidated damages

A

Upheld if damages:

  1. Were difficult to estimate at the time of the contract; and
  2. Are a reasonable forecast of probable damages; but
  3. Cannot operate as a penalty
65
Q

Monetary damages - Incidental damages

A

Costs to the injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction are always recoverable

66
Q

Monetary damages - Consequential damages = Indirect results from breach

A

Consequential damages must be reasonably foreseeable to the breaching party at the time the contract was formed

Note: Consequential damages are not available to a seller under Article 2

67
Q

Monetary damages - Avoidable damages

A

Subtract these

An injured party cannot recover damages he could have avoided with reasonable effort

68
Q

Third party problems: Entrustment

A

An owner who entrusts goods to a merchant who deals in the goods of the kind has no rights against a BFP

69
Q

Third party problems: Third party beneficiary

A

Two people enter a contract intending to benefit a third party

Intended beneficiary - usually named in the contract: A person not party to the contract but has rights under the contract because it was intended to benefit her

Promisor: The party who promises to perform for the 3rd party

Promisee: The party who secures the promise

Rescission and modification of 3rd party deals:

  • General rule: The promisor and promisee can rescind or modify the contract until the rights of the 3rd party have vested
  • Exception: Contrary langauge in the contract controls
70
Q

Third party problems: Assignment of rights to a third party

A

Two people make a contract; later, one transfers his rights to a third party.

The party who owes the duty is the obligor

Valid assignments must have language of present transfer

Consideration is not required to make a valid assignment

Restrictions on assignment:

  • Contract langauge controls:
    1. If assignments are prohibited, they are not permitted, but an assignee that doesn’t know of that language can still collect
    2. If assignments are “null and void,” they are not permitted and assignee cannot collect

Assignments cannot substantially change duites of the obligor

Olbigor liability to assignee after assignment - Obligor must pay the assignee

71
Q

Third party problems: Multiple assignments - which assignee gets to collect

A

Gratuitous gift assignments are easily revoked - the last gratuitous assignee prevails over earlier gratuitous assignees because a later gift assignment revokes an earlier one

Assignments for consideration are more durable - first one wins: The first assignee for consideration prevails over all subsequent assignees as well as prior gratuitous assignees

Exception: A later assignee for consideration prevails if he DOES NOT know of the earlier assignments and is the first to get payment from or a judgment against the obligor

72
Q

Third party problems - Delegation of duties to a third party

A

Delegation is a transfer of contract duties, not a transfer of rights

General rule: Contractual duties may be delegated to another party without the consent of the person to whom performance is owed

Exceptions:

  • Contract language controls
  • Person with special skills or reputation - can’t delegate

Rights of the obligee:

  • Delegating party always remains liable
  • A delegate who gets consideration is liable

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