Contracts Flashcards
What law governs a contract
Contract for the sale of goods are governed by article 2 of the UCC.
All other contracts are governed by general common law contract principles. We are only required to know the majority view.
What law governs mixed contracts
Whichever is more predominant in the contract governance. This is an all or nothing rule unless the contract explicitly divides the payments.
Implied in law= Quasi-contract
When contract theory fails to produce a just result, quasi contract is available as an equitable doctrine and to prevent the unjust enrichment of one party. Quasi contract arises where one party confers a benefit upon the other with the reasonable expectation that they will receive payment for the benefit or where a party reasonably relies on a gratuitous promise made by another.
What is a unilateral contract
Unilateral contract is one where the offer expressly demands acceptance by performance. Unilateral contracts can only be accepted by completing performance.
In an offer for a unilateral contract is an offeree who accepts by rendering the requested performance required to give notice
Only if the offeree has reason to know that the offeror would not learn of the requested performance with reasonable certainty and promptness.
Valid contract requires:
Mutual assent (offer and acceptance). Consideration from each party. No defenses to formation.
What is an offer
An offer is the manifestation of a present intent to contract that is communicated in definite and certain terms to the offeree
Are advertisements offers
Usually, advertisements are mere invitations to deal and not offers. Exceptions are advertisements in the nature of a reward and advertisements that are specific as to quantity and expressly indicate who can accept.
What is the test for determining if there is a manifestation of a present intent to contract
The basic test is whether a reasonable person in the position of the offeree would believe that her assent to the offer would create a contract.
What terms must be included in an offer for real estate
Offers for real estate must identify the land with some particularity and the price.
What terms must be included in a sale of goods contract?
The quantity of goods being offered must be certain or capable of being made certain. Under the UCC, the contract may be enforceable in the absence of a price term so long as the parties otherwise intended to enter into a contract.
What terms must be included in output, requirements, and exclusivity contracts?
A contract for the sale of goods can state the quantity of goods to be delivered under the contract in terms of the buyers requirements, sellers output, or in terms of exclusivity. Although the UCC ordinarily requires contracts to specify the quantity of goods to be provided, output, requirements, and exclusivity contracts are sufficiently definite to be enforced under the UCC because the output requirements will approximate a reasonably foreseeable figure.
What terms must be included in an employment contract?
An offer to enter into a contract for employment must specify the duration. If duration is not specified in the offer is nevertheless accepted, the contract will be considered terminable at will.
What does permanent employment mean in the context of employment contracts
It is well established that permanent employment means employment at will in that context. In an employment at will relationship, either party can terminate the agreement at any time, without the termination being considered a breach (unless the termination was to violate an important public policy).
An offeree’s power of acceptance may terminate due to a lapse of time when
The offeree fails to accept the offer within the time stated in the offer or within a reasonable time if no time is stated.
What if the offeror or the offeree dies or becomes incapacitated after the offer but before acceptance
The offer will terminate unless the offer cannot be revoked
For revocation of an offer to be effective…
The offeree must have notice of the revocation. A revocation is effective upon receipt by the offeree.
Does the act of making multiple offers revoke early offers?
The act of making multiple offers does not by itself revoke early offers. As such, if one offeree accepts, the offeror must notify every other offeree to effectively revoke the other offers.
What are the different types of irrevocable offers?
A promise by the offer or not to revoke and payment by the offeree for that purpose.
An offer is irrevocable for a reasonable period of time if there is reliance that is reasonably foreseeable and detrimental.
Start a performance (beyond mere preparation) on a unilateral contract offer makes the offer irrevocable.
UCC firm offer rule: Written offer to buy or sell goods signed by a merchant promising it will be held open is irrevocable for the stated time period or a reasonable time if no time period is stated but in no case will the offer be irrevocable for longer than three months.
Definition of merchants under the UCC
Merchants are defined of those who regularly deal in goods of the kind sold and are held to a higher standard of good faith
How does a counteroffer affect an offer
A counteroffer always terminates the original offer and the counter offer becomes the new offer.
Reply to an offer that merely request information regarding the offer constitutes an inquiry rather than a counter offer.
How does a conditional acceptance affect an offer
A conditional acceptance terminate the original offer and becomes the new offer
If a proposed contract that was legal at the time of the offer become illegal…
The power of acceptance is terminated.
What is acceptance?
Words or conduct by the offeree manifesting an assent to the terms of the offer. A valid acceptance requires that a party, who is able to accept the contract (ie, an offeree), unequivocally accept the offer and communicate that acceptance to the offeror. For an acceptance to be valid, it must occur before the offer is terminated.
Is knowledge of the offer needed for acceptance
Yes
Are offers assignable
Except for option contract supported by consideration, offers are non-assignable and can only be accepted by the person to whom the offer was made.
At common law, what if the acceptance has additional terms?
A common law acceptance had to be a mirror image of the offer. Any deviation from the terms of the offer constituted a rejection of the offer and, instead, formed a counter offer.
Under the ucc, what if additional terms are included in the acceptance?
Under the UCC, acceptance may be made on different terms, and whether such terms become part of the contract depends on whether one or both parties to the contract are merchants.
If only one party to the contract is a merchant, the additional term does not become part of the contract but it’s rather a proposal to be separately excepted or rejected.
If both parties are merchants, the additional term becomes part of the contract unless the offer expressly limits acceptance to the terms of the offer, the additional term is a material alteration to the contract, or notification of objection to the additional term has already been given or is given within a reasonable time after notice of the additional term is received.
Mode of acceptance
Offers may be accepted by the manner explicitly authorized by the offer or any reasonable means if no specific manner of acceptance is required by the offer
What is the mailbox rule?
An acceptance is generally effective upon dispatch.
Note: all communications other than an acceptance are affective upon receipt.
What are the exceptions to the mailbox rule
The offer provides otherwise.
If a rejection is sent first, neither the rejection nor the subsequent acceptance as effective until receipt.
Acceptance of an option contract is effective only upon receipt.
Is promising to perform acceptance
Whether or not promising to perform as acceptance depends on whether the contract is bilateral or unilateral. Promising to perform is acceptance for bilateral contracts. Promising to perform is not acceptance for unilateral contracts since a unilateral contract can only be accepted by completing performance
Is completing performance acceptance
Full performance is always acceptance unless there is failure to give notice by the offeree.
Substandard or improper performance is an acceptance and a breach.
Is starting performance acceptance
Whether or not starting performance is acceptance depends on whether the contract is bilateral or unilateral. As a general rule, the start of performance is acceptance for bilateral contracts. Starting performance is treated as an implied promise to perform. Starting performance is not acceptance for unilateral contract since unilateral contract can only be accepted by completing performance. Note, however, that starting performance on unilateral contract will make the offer irrevocable for reasonable period of time to complete performance.
(UCC) Offer to buy goods can be accepted by
Offered to buy goods can be accepted by a prompt promise to ship the goods or prompt shipment of conforming goods. Shipment of non-conforming goods is an acceptance and breach unless the Shipment of non-conforming goods contains a notice of accommodation. In that case there is a counteroffer which the buyer is free to either accept as is or reject in whole.
Can silence be acceptance?
The general rule is that the offeree must objectively manifest assent to the offer to be bound. As a corollary, silence on the part of a offeree is not generally an objective manifestation of assent. There are exceptions to this general rule where the parties have a prior history of dealing on such a basis, intent to contract exist, or benefits of the contract are taken with reasonable opportunity to reject them.
What is consideration?
Consideration is the bargained-for exchange between the parties
Adequacy of consideration
This is generally not at issue in contract law as courts do not inquire into the adequacy of consideration. If a bargained- for exchange is present, there is no additional requirement, such as equivalency of exchange, in order to satisfy the consideration requirement of an enforceable contract.
However, the following are not consideration: Entirely devoid of value or illusory promises (I promise to unless I change my mind.)
Can past consideration be consideration?
As a general rule, something that happened before the promise cannot be consideration.
However, where an act benefits the promisor and the act was performed by the promisee at the express request of the promisor or in response to an emergency, a subsequent promise to pay for that act will generally be enforceable (valid consideration).
Under common law, does a modification to a contract require consideration to be valid?
Unlike the UCC, the prevailing common law view is that a modification to a contract requires consideration to be valid.
Any addition or change in performance will qualify as new consideration.
A promise to modify a duty under contract not fully performed on either side is binding if the modification is fair and equitable in light of circumstances not anticipated by the parties when the contract was made.
Under the UCC, is new consideration required for modifications on a sale of goods contract?
No new consideration is required for good faith modifications on a sale of goods contract.
Is part payment on a debt new consideration?
If a debt is due and undisputed, part payment is not new consideration for settlement or release. If a debt is not yet due or it is disputed, part payment is new consideration for settlement or release. This exception applies even if it later becomes apparent that the reason for disputing the debt was invalid.
A promise is legally enforceable even though there is no consideration if there is one of the following consideration substitutes:
- Seal, but not under the UCC and not in many states.
- A written promise to satisfy a legal obligation that is no longer enforceable because of the statute of limitations.
- Promissory estoppel:  Words of promise & reasonable, detrimental, and foreseeable reliance & injustice can only be avoided by the enforcement of the promise.
Void, aka void ab initio
Void ab initio means void from the outset so that it cannot be enforced by either party
Voidable contract?
Voidable contract is voidable at the election of one or both of the parties to a contract, i.e., the party has the choice of treating a contract as fully valid and enforceable or relying on the defect to escape the contractual relationship.
What is an unenforceable contract
An unenforceable agreement is a valid agreement that cannot be enforced in a court of law due to a defense that is not related to contract formation.
What if a party to a contract lacks capacity
A party to a contract who lacks capacity has a right to disaffirm the contract regardless of the other party’s capacity.
Who lacks capacity to contract?
Minors (under 18)
People with a mental incompetency
Intoxicated person If the other person has a reason to know of the intoxication
Quasi contract liability for necessaries by a person who lacks capacity
A person who does not have capacity is nevertheless legally obligated to pay for things that are necessary, such as food, clothing, medical care, or shelter. This is not contract liability but, rather, quasi contract liability, which requires a person to pay the reasonable value of the necessaries conferred.
If a party enters into a contract before they had capacity but they now have capacity and have continued to keep the benefits of the contract without complaint, then
There is implied affirmation.
If a party has the legal capacity to contract, but the party’s free will is overcome by duress or undue influence then the contract is
Voidable at the election of the innocent party
economic duress with respect to a contract can be proved through showing that
A party made a threat to another party, the threat was improper or wrongful, the threat induced the other party’s manifestation of assent to the contract for the modification, and the threat was sufficiently great to justify the other party’s ascent.
What are the elements of undue influence with respect to a contract
Undue susceptibility to pressure and excessive pressure. The undue susceptibility element can be established either by the circumstances or the existence of a confidential relationship.
What contract fall within the statute of frauds
Contracts incapable of being performed within one year as determined by what is possible at the time the contract was entered into.
Sale of goods for $500 or more.
Prenuptial and postnuptial agreements.
A promise to answer for the debt of another person if the debtor doesn’t pay the debt.
Executor promises to pay estate debts with own funds.
Transfers of interest in real estate except for a leasehold of one year or less.
If a contract requires performance on a specific date and the specific date of performance is more than one year away from the date the contract was entered into, does the contract fall within the statue of frauds
Yes.
Do contracts for specific tasks fall within the statue of frauds
Contracts for specific tasks do not fall within the statute of frauds because, theoretically, it is possible for any task to be completed within a year with unlimited resources.
Do contracts for life within the statute of frauds?
Contracts for life do not fall within the statute of frauds because it is possible that person will die within the year.
Is a possibility of early termination relevant to whether a contract falls within the statute of frauds
The possibility of early termination is irrelevant to whether a contract falls within the statute of frauds. The question is whether the contract can be completed within one year not whether it can be terminated within one year.
If the main purpose of a debt being guaranteed is to benefit the guarantor, will the statute of frauds apply?
The statute of frauds does not apply if the main purpose of the debt being guaranteed was to benefit the guarantor.
How can a statute of frauds be satisfied
Statute of frauds can be satisfied by writing, performance, or judicial admission.
To satisfy the statue of frauds with a writing what is required under common law?
All material terms including who is making the agreement and what is being agreed to.
The contract must be signed by the person who is asserting the statute of frauds defense to the contract.
To satisfy the statute of frauds with a writing, what is required under the UCC?
The writing must be sufficient to indicate a contract for the sale of goods.
Quantity. (Price not req’d)
The contract must be signed by the person who is asserting the statute of frauds defense to the contract. Signed includes using any symbol executed or adopted with present intention to adopt or accept a writing. In approprate cases the symbol may be found in a bill head or letterhead. Also, if both parties are merchants and one party sends a signed written confirmation, the statute of frauds is satisfied unless the other party objects within 10 days.
Does full performance by either party of a contract for services not performable within one year satisfy the statute of frauds?
Yes. Full performance by either party of a contract for services not performable within one year satisfies the statute of frauds.
Does part performance of a contract for services satisfy the statute of frauds?
Part performance of a contract or services does not satisfy the statute of frauds. However, a Plaintiff may recover under the theory of quasi contract if the result under contract law is unjust.
Does part performance by a seller of ordinary goods satisfy the statute of frauds?
Part performance by the seller of ordinary goods satisfies the statute of frauds but only for the goods received and accepted. The statute of frauds remains a defense for any undelivered goods.
Does part performance by a seller of specialty goods satisfy the statute of frauds?
If the goods are specially made for the buyer and the seller has either started production or committed for their procurement, there is no statute of frauds defense.
Does part payment by the buyer for multiple goods satisfy the statute of frauds
Part payment by the buyer for multiple goods satisfies the statute of frauds but only to the extent of the payment made.
Does part payment by the buyer for a single good satisfy the statute of frauds?
A part payment by the buyer for a single good satisfies the statute of frauds as to the single item and the agreement is legally enforceable.
In a sale of land contract, what is required to satisfy the statute of frauds?
Two of the following three are required to satisfy the statute of frauds:
- Buyer takes possession
- Buyer pays all or part of the purchase price
- Buyer makes substantial improvements to the land
What happens if the party asserting a statute of fraud defense admits under oath (eg, in pleadings, testimony, or response to discovery) That there was, in fact, a contract?
There is no statute of frauds defense. 
What is the equal dignity rule
If the contract is within the statute of frauds, then written authorization is required for someone else to legally enter into a contract on the principal’s behalf
If the contract as allegedly modified is within the statute of frauds, then
The contract must be in writing
What if a contract expressly prohibits oral modification or requires writing?
Under common law, ignore such provisions.
Provisions requiring modifications in writing are valid under the UCC, unless there is a waiver.
What happens when a party is induced to enter into a contract based upon the other parties fraudulent misrepresentation of existing fact
The contract may be voidable in whole or in part at the election of the defrauded party if the defrauded party justifiably relied on the misrepresentation. Note that there is no general duty to disclose but affirmatively hiding a material fact is fraudulent misrepresentation.
When does the time period within which a party may void a contract due to misrepresentation begin to run?
The time period within which a party may void a contract due to a misrepresentation does not begin to run until that party either knows or has a reason to know of the misrepresentation.
What if one party to a contract makes a non-fraudulent misrepresentation?
Even if the misrepresentation was innocent, the contract is still avoidable by the innocent party if she justifiably relied on the misrepresentation and the fact misrepresented was material.
Fraud in the factum
Fraud in the factum is occurs where A makes or signs an agreement but either does not realize that it is supposed to be a contract or does not understand the nature or content of the agreement because of some false information that B gave to A.
What if there is fraud in the factum
The contract is void
Mistake of fact
Mistake of fact differs from misrepresentation because here the party is making the mistake on her own. A mistake is defined as a belief that is not in accord with the facts. Only applies to existing facts.
A mutual mistake is a defense if
The mistake must be in regard to subject matter of the contract, not the value; the mistake must have a material adverse effect on the agreement; and the adversely affected party must not have assumed the risk of mistake. Note, there is a presumption that the seller assumes the risk of knowing what she owns and what she is selling.
When is unilateral mistake of fact sufficient to void a contract
When the requirements for mutual mistake are satisfied and the other party knew or should’ve known of the party’s mistake or enforcement of a contract would be unconscionable.
What if there was a mistake due to ambiguity
Mistake due to ambiguity is a contract formation defect. = no contract
There will be no contract due to mistake due to ambiguity if:
A material term is subject to at least two reasonable interpretations, each party has a different meaning in mind, and neither party is aware of the ambiguity.
If one party knows the term has at least two reasonable interpretations, then we have a valid contract under the terms as understood by the party who was unaware of the ambiguity.
If a clause in the contract or so one-sided as to be unconscionable, a contract
May be voidable. A court has the power to refuse to enforce a provision or an entire contract to avoid unconscionable terms.
When is unconscionability determined
Unconscionability is always determined at the time of contract formation.
What are common unconscionable contracts
Contract is one-sided Substantially disparate bargaining power Against public policy Inconspicuous risk shifting Contracts of adhesion (take it or leave it)
If the contract is for an illegal subject matter (contract to kill someone) or states consideration that is illegal (one kilo cocaine)…
It is not legally enforceable, except:
- If a Plaintiff entered into the contract without knowledge that the subject matter of the contract was illegal, but the defendant acted with knowledge of the illegal subject matter, the Plaintiff may recover damages on the contract.
- A party may seek relief if she is not as culpable as the other party even if the subject matter of the contract was illegal.
If the contract was formed for an illegal purpose not known by the other party, but neither the consideration nor the subject matter is illegal, then is the contract legally enforceable?
Yes, the contract is legally enforceable. However, the contract is voidable by the party who was unaware of the legal purpose OR was aware, but did not facilitate the purpose AND the purpose doesn’t involve serious moral turpitude.
A contract that violates a regulatory statute may be
 Unenforceable as against public policy if the policy against enforcement outweighs the interest of enforcement. This general rule is subject, however, to an exception when those intended to be protected by the statute would be harmed by a finding of unenforceability.
For the parol evidence rule to apply what must there be?
There must be an integration. And integration is a written agreement intended to be the final contract between the parties. Integration can be partial or complete.
How many parol evidence rules are there
There are two parol evidence rules. One governs when the writing is a partial integration and another governs when the writing is a total integration.
When there is a complete integration what does the parol evidence rule state
Where there is a complete integration, no evidence of prior or contemporaneous agreements is admissible that would either contradict or supplement the writing
Are agreements and negotiations prior to or contemporaneous with the adoption of a writing admissible to establish integration?
Yes, agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible to establish that the writing is or is not an integrated agreement and to establish that the integrated agreement, if any, is completely or partially integrated.
Where there is a partial integration, what does the parol evidence rule state?
Where there is a partial integration, no evidence of prior or contemporaneous agreements is admissible if the evidence would contradict a term of the writing. With a partial integration, however, evidence of prior or contemporaneous agreements is admissible to supplement the contract.
Is parol evidence generally admissible to contradict or change a written contract?
Parol evidence is generally inadmissible to contradict or change the written contract regardless of whether complete or partial integration.
EXCEPT Parol evidence is admissible to show a clerical error.
Is extrinsic evidence admissible to show formation defects such as illegality, fraud, Duress, mistake, lack of consideration?
Yes formation defects may be shown by extrinsic evidence. Irrelevant if partial or complete integration.
Is extrinsic evidence admissible to establish an oral condition to the parties’ performance under the contract?
Yes the condition precedent exception to the parol evidence rule permits the omission of extrinsic evidence to establish an oral condition to the parties performance under the contract.
Is extrinsic evidence admissible to show a consistent collateral contract that normally would not be included in the integrated writing?
Yes. Parol evidence is admissible to show a consistent collateral contract that normally would not be included in the integrated writing.
Is extrinsic evidence admissible to explain or interpret ambiguous terms in the contract?
Yes. parol evidence is admissible to explain or interpret ambiguous terms in the contract. Complete or partial integration. Some jurisdictions permit a party to also introduce extrinsic evidence to first demonstrate the existence of the ambiguity. Other jurisdictions will only allow this exception if the ambiguity is patent on the face of the document itself.
Is extrinsic evidence admissible to supplement a contract?
Extrinsic evidence is admissible to supplement only if the integration is partial.
What is a merger clause and how does it relate to the parol evidence rule
A merger clause in a contract indicates that the contract is a final integration of the agreement between the parties. Such clauses will cause the parol evidence rule to apply.
What is contract reformation
Reformation is an equitable action to modify a written contract to reflect the true intent of the parties.
How does a court decide if a contract term is ambiguous?
There are three main approaches used to determine if an ambiguity exists in the contract.
- Under the FourCorners approach, interpretation is governed by the four corners of the contract itself.
- Under the plain meaning approach, the court will consider evidence of the circumstances (context) of the agreement to determine if an ambiguity exists, but the court will not consider evidence of the parties preliminary negotiations.
- Under the liberal approach to contract interpretation, the court will consider evidence of preliminary (pre-contract) negotiations to determine if an ambiguity exists.
What are the maxims that courts will follow when deciding how to interpret a contract?
- A writing is interpreted as a whole, and all writings that are part the same transaction are interpreted together.
- If the primary purpose of the parties is ascertainable, that purpose is given great weight.
- Specific terms and exact terms are given greater weight than general language. Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated. As a general rule, a contract is interpreted against the drafter in disputes involving the interpretation of contract language. Where language has a generally prevailing meaning, it is interpreted in accordance with that ordinary meaning unless a different intention is manifested.
- Technical terms and words of art are given their technical meaning when used in a transaction within their technical field.
Whenever reasonable, the manifestations of the intent of the parties to a promise or agreement are interpreted as consistent with…
Each other and with any relevant course of performance, course of dealing, or usage of trade (listed in order of persuasiveness).
Remember, however, that expressed terms are given greater weight than course of performance, course of dealing, and usage of trade.
What is custom and usage
Any practice or method of dealing having such regularity of observance in a place, location, or trade as to justify an expectation that it will be observed with respect to the transaction in question.
If terms are left out of a contract for the sale of goods what happens?
It terms are left out of a contract for the sale of goods, the UCC default provisions will apply
Under the UCC, the time for shipment or delivery if not specified in the contract shall be
A reasonable time
Under that UCC, the place for delivery of goods if not specified in the contract is
The seller’s place of business or, if she has none, her residence.
Under the UCC if delivery is not by common carrier and the seller is a merchant, seller’s delivery obligation is complete when
The buyer receives goods at seller’s place of business or location of goods known to the buyer
Under the UCC if delivery is not by common carrier and the seller is not emergent, the seller’s delivery application is complete when
The seller tenders goods.
Tenders means telling buyer where the goods are and how to get them.
Under the UCC, if a contract is otherwise silent, a shipment contract is presumed where
The contract requires shipment by a third-party carrier.
Under the UCC, what is required under a shipment contract
Under a shipment contract, the seller is required to turn the goods over to a common carrier for delivery, but is not responsible for the arrival of the goods at the final destination. Therefore, the seller’s delivery obligation is complete before the goods are actually delivered to the buyer.
Seller is legally obligated to put the goods in possession of a common carrier and make reasonable arrangements for their transportation, obtain and properly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods, and probably notify the buyer of the shipment. Note, however, that failure to notify is a ground for rejection only if material delay or loss ensues.
Risk of loss (UCC)
- If the parties agreed as to risk of loss the agreement controls.
- If a party breaches, that party is liable for any uninsured loss even if the loss is completely unrelated to the breach.
- Otherwise, the seller bares the risk of loss until completion of the delivery obligation.
Under the UCC what is a destination contract?
Under a destination contract, the seller is required to deliver the goods at a particular location. The seller does not complete delivery obligation until the goods actually arrive at the final destination.
Under the UCC, express warranties quality can be made by
Statement of fact, by promise, or by conduct (showing buyer sample or model).
Are statements of value or opinion express warranties, e.g. worlds best?
Statements of value or opinion are not Express warranties
What are the implied warranties under the UCC?
- Warranty of title
- Implied warranty of merchantability
- Implied warranty of fitness for particular purpose
Warranty of title under the UCC?
Every seller automatically warrants that the title conveyed to the buyer is good and its transfer rightful
Under the UCC, when is an implied warranty of merchantability implied
A warranty of merchantability is implied in every contract for the sale of a good by a seller who is a merchant with respect to goods of that kind.
Under the UCC, an implied warranty of merchantability requires
That goods sold by merchants must be fit for their ordinary purpose
Under the UCC what is the warranty against infringement
A seller who is a merchant regularly dealing in goods of the kind also warrants that the good shall be delivered free of the rightful claim of any patent, trademark, or copyright infringement.
Under the UCC, What is the implied warranty of fitness for a particular purpose
If the buyer has a particular purpose for purchasing the goods that the seller is aware of, then the goods must be fit for that particular purpose.
Under the UCC are disclaimers of warranties valid
 Express warrantees generally cannot be disclaimed.
Implied warranties of merchantability can be disclaimed if conspicuous. Conspicuous requires that the disclaimer portion of the contract be in a different print or a different font from the rest of the contract. The phrases “as is” or “with all faults” effectively eliminates implied warranties.
Under the UCC, can remedies be limited?
One can limit remedies unless unconscionable. Limitation of remedies is prima facie unconscionable when a breach of warranty on consumer goods causes personal injury.
The UCC has set forth three alternatives for determining to whom warranty liability extends. What are the three alternatives? And which alternative have most states adopted?
-Alternative A- A sellers warranty whether express or implied extends to any natural person who is in the family or household of her buyer or who is a guest in the home if it is reasonable to expect that such person may use, consume, or be affected by the goods and who is injured in person by breach of a warranty.
-Alternative B- alternative B removes the family or household requirement, extending liability to any natural person reasonably expected to use, consume, or be affected by the goods and who is injured in person.
-Alternative C- Alternative C removes the “injured in person” requirement of alternative B.
Most states have adopted the narrow position of alternative A.
Under the UCC, If the price is not specified in the contract, the price is a reasonable price at the time of
delivery.
Under tge UCC, if not specified in the contract, when is payment due
Payment is due at the time and place at which the buyer is to receive the goods. So, for a non-carrier contract, payment is due upon tender of delivery and for a carrier contract payment is due when buyer receives the goods.
Under the UCC parol evidence rule, does a merger clause conclusively determine that an agreement is completely integrated?
Enter the UCC parol evidence rule, unlike the common law rule, a merger clause does not conclusively determined that an agreement is completely integrated.
Under the UCC if the course of performance is inconsistent with the course of dealing what controls
The course of performance
Under the UCC, if the course of dealing is inconsistent with a usage of trade what controls?
Course of dealing controls
Mutual rescission?
Mutual rescission as an express agreement by both parties to cancel the original contract. An agreement to resend is it self a binding contract supported by consideration, I.e., each party gives up the right to demand performance from the other party.
Is a writing required for mutual rescission?
There is no general rule requiring a writing for discharge by mutual agreement
Unilateral rescission?
Unilateral rescission is available only if one of the parties to the contract has an adequate legal ground to rescind the contract (Fraud, Duress, mistake, lack of consideration, etc.)
Accord?
An accord is an agreement to accept a different performance in satisfaction of the existing obligation. Accord by itself does not discharge the Prior contract. It suspends the right to enforce the original contract until the accord is satisfied.
Satisfaction?
Satisfaction is the performance of the accord agreement. Satisfaction discharges both the original contract and the accord contract.
If the accord is not satisfied, the nonbreaching party may sue either on the original discharge contract or for breach of the accord agreement.
Contract modification under common law
Modification is an agreement by the parties to an existing contract to accept a different agreement in satisfaction of the existing obligation. Unlike the UCC, the prevailing common law view is that a modification to a contract requires consideration to be valid. The legal detriment or forbearance must be new to be valid consideration unless:
- Addition or change in performance
- unforeseen difficulty OR
- The promisee owes a pre-existing duty to a third person rather than to the promisor
Must a modification be in writing?
If the contract as allegedly modified is within the statute of frauds, then the modification must be in writing.
Under the Common law, a provision that requires writing should be ignored.
Under the UCC a provision requiring modification in writing is valid unless there is a waiver.
Novation?
A novation arises where either one or both of the parties to a contract is replaced by a third-party.
The requirements for a valid novation are a previous valid contract, an agreement by all the parties including the new third party and a valid and enforceable new contract.
The effective novation is that it immediately extinguishers the contractual duties between the parties to the original contract. The party being replaced by novation is excused from any liability for non-performance.
Impossibility
Impossibility occurs when circumstances affecting the contract have changed, the change is not due to any act by the defendant, and the change of circumstances causes performance to be impossible for the defendant.
Does objective impossibility excuse performance?
Yes, objective impossibility (no one could perform the contract) excuses performance
Does subjective Impossibility excuse performance
No, subjective impossibility (party cannot perform but someone else could) does not excuse performance.
Specific examples of impossibility
- If a supervening law makes performance of a contract illegal, performance is excused.
- As a general rule, death or physical incapacity of a party to a contract after contract formation but before performance does not excuse performance. However, death or physical incapacity of a person necessary to effectuate the contract excuses performance.
- The destruction of the subject matter of a contract without the fault of either party discharges the duty to perform.
The UCC provides that where goods, identified at the time the contact was made, are totally destroyed before the risk of loss has passed to the buyer and without the fault of either party, the contract is
Avoided and each party is relieved of its respective obligation to perform.
Impracticability?
Impracticability is a subjective test that examines whether performance would be commercially unreasonable due to subsequent circumstances unforeseeable at the time of contract formation.
Performance of a contractual obligation is impracticable when:
Circumstances affecting the contract have changed, the change is not due to any act by the defendant, and a change of circumstances causes undue hardship on the defendant.
Can uncertain weather and unanticipated market conditions Support a challenge to the validity of a contract based upon commercial impracticability?
No. Uncertain weather is always foreseeable at the time of contract formation and anticipated market conditions will never support a challenge to the validity of the contract based on commercial impracticability
What is the effect of temporary impossibility
Temporary impossibility will suspend contractual duties but it will not discharge them
What is the effect of temporary impracticability?
Temporary impracticability will suspend contractual duties but it will not discharge them
Frustration of purpose?
Frustration of purpose arises where supervening events unforeseeable at the time of contract formation destroy the purpose of the contract that was known by both parties. Frustration of purpose requires that the purpose of the contract was known by both parties at the time of contract formation, circumstances that are out of the defendant’s control have changed, and the supervening events caused the original purpose to be unavailable.
What are the three types of later unforeseen events that can result in discharge of Contractual duties
Impossibility, impracticability, frustration of purpose
Definition of express condition
Language in a contract that states something must occur before someone’s performance is due
If an expressed condition is not satisfied or waived then
Non-performance is excused.
Who can avoid performance when an expressed condition is not satisfied or waived
Only the protected party can avoid performance. Courts look beyond the words of a condition, and if it is clear that the purpose of the condition was to benefit or protect one of the parties, the language of the condition will be interpreted as if that intention has been embodied in the contract terms
Who can waive an express condition?
Only the party who is protected by the condition can wave an express condition. It is important to note, however, that if a party waives a condition, that party may reinstate the condition with respect to future acts of performance.
Excuses of Express conditions
Waiver, estoppel, prevention of performance by protected party, avoidance of forfeiture
Estoppel as excuse of express conditions
Estoppel occurs when the party protected by the condition, by words or conduct before a condition is satisfied, causes the other party to believe that she will not require satisfaction of the condition.
If a party protected by an express condition intentionally or negligently prevents the condition from occurring, then
The condition is eliminated.
What is avoidance of forfeiture as excuse of express condition
The nonoccurrence of a condition may be excused in order to avoid disproportionate forfeiture.
Forfeiture is the denial of compensation that results when the obligee loses her right to the agreed exchange after she has relied substantially, as by preparation or performance, on the expectation of that exchange.
Anticipatory repudiation?
Where a party unambiguously states by words or conduct to the other party, before the time for performance has arisen, that she will not perform for that she is unable to perform, the other party is entitled to treat that as an anticipatory repudiation that generally excuses performance by the non-repudiating party and gives rise to an immediate right to sue for recovery.
When does anticipatory repudiation through conduct arise?
Anticipatory repudiation through conduct arises where there is a contract for services in exchange for a thing and before the services are completed, the thing is sold or transferred to someone else.
What are the options of a non-repudiating party
- May treat the anticipatory repudiation as an offer to rescind the contract and rescind.
- Sue for damages immediately except if non-repudiating party has already completed performance, then the non-repudiating party must wait until the contract becomes due to sue.
- May suspend performance and sue once the contract becomes due.
- Do nothing and encourage performance.
Until when may an anticipatory repudiation be effectively retracted?
Anticipatory repudiation may be effectively retracted until non-repudiating party has accepted or detrimentally relied on the anticipatory repudiation.
In a contract for the sale of goods, a party who has reasonable grounds for insecurity is entitled to
- Request assurances (in writing)
- Suspend performance pending receipt of that assurance.
Under the UCC, a party to a contract who has reasonable grounds for insecurity request assurances and the other party fails to provide an adequate assurance within a reasonable time what happens?
A failure to provide an adequate assurance within reasonable time not to exceed 30 days can be treated as repudiation, which may give rise to a right to terminate the contract.
Under the common law where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would itself give the obligee a claim for damages for total breach what may the obligee do?
The obligee may demand an adequate assurance of due performance and may, if reasonable, suspend any performance for which she has not already received the agreed exchange until she receive such assurance.
When does a breach of contract occur
A breach of contract occurs when a party to the contract does not perform after performance comes due.
Under the UCC, what are the buyers options if tender is less than perfect?
-A buyer can reject all of the goods and sue for damages (is entitled to a return of any payments made for the goods)
-The buyer can accept the goods and sue for damages (Contract price will be reduced by any damages for losses resulting from the non-conforming shipment)
OR
-Except some, reject non-conforming and Sue for damages
If the seller does not deliver perfect tinder, the seller still has the option to cure if:
The seller has the option to cure if the time for performance has not yet expired or the seller had reasonable grounds to believe that less than perfect tender would be acceptable to the buyer because of prior dealings or otherwise.
What is an installment sales contract
An installment sales contract is a contract that requires or authorizes multiple shipments in installments with multiple payments
Under the UCC what standard is used for determining whether a buyer can reject a particular installment or cancel an entire installment sales contract?
The substantial impairment standard.
A buyer can reject an installment delivery only if the non-conformity substantially impairs the value of that installment and cannot be cured.
A buyer can cancel an entire contract only when the non-conformity with respect to one or more installments substantially impairs the value of the whole contract.
Will a buyer’s previous acceptance of a non-conforming tender constitute a waiver of her right to reject a later non-conforming tender?
No
How does a buyer accept goods
A buyer accepts goods when she indicates to the seller after a reasonable opportunity to inspect the goods that the goods conform to requirements of the contract or that she will keep the goods despite the fact that they are non-conforming. Payment by the buyer without opportunity to inspect the goods is not acceptance.
A buyer also accepts if she either fails to reject or fails to appropriately notify the seller of rejection within a reasonable time after a tender or delivery. Acceptance without complaint within a reasonable time is acceptance. Generally, acceptance is implied if more than a month goes by without complaint.
If a buyer accepts goods can she later reject the goods?
Only if the non-conformity substantially impairs the value of the goods, there is excusable ignorance or reasonable reliance on seller’s assurances of conformity, and revocation is within a reasonable time after discovery of the non-conformity.
What if an agreement for sale which is otherwise officially definite to be a contract leaves particulars of performance to be specified by one of the parties?
The contract will still be valid.
When can a seller treat the buyers failure to specify as a breach?
The seller can treat the buyers failure to specify as a breach by failure to accept the contracted for goods only if the buyer’s failure to specify materially impacts the sellers performance.
If not specified in the agreement for sale which party has a duty to specify the assortment of goods?
The UCC imposes a duty on a buyer to cooperate by specifying the assortment of goods where the contract fails to so provide.
Specifications or arrangements relating to shipment are at the seller’s option or the buyer’s option?
Specifications arrangements relating to shipment or at the seller’s option.
In a contract for the sale of goods, what if a party with a duty to specify a particular of performance fails to do so?
The other parties is excused for any resulting delay in her own performance and may also either proceed to perform in any reasonable manner or, if time for her own performance has passed, treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
Under common law when is substantial performance present
Substantial performances present when a party completes its contractual obligations with no uncured material failure.
What is a material breach
Material breach is a refusal to perform under the contract which goes to the heart of the promised performance. Material breach is a question of fact.
Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, when are the performances due?
Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or circumstances indicate otherwise.
Where one party’s performance requires a period of time, when are performances due?
Where one party’s performance requires a period of time, that party must complete its performance before the other party is required to perform unless the language or circumstances indicate otherwise.
When there is a material breach what options does the Nonbreaching party have?
The nonbreaching party can treat the contract as terminated and has an immediate right to all remedies for breach.
When there are multiple acts with a lump sum payment when do you have material breach?
Less than half is clearly not substantial performance and therefore material breach. While under contract law, the nonbreaching party is not required to perform, quasi contract recovery is still available for the breaching party.
What are divisible contracts
A contract is divisible where the performance is to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents. Note that if the parties expressly contract that payment is to be made after performance is completed the contract will not be divisible.
How is material breach determined for divisible contracts
Material breach is based on each individual performance. Recovery is available under contract law for each completed performance because contract law acknowledges the fact that parties sometimes embody obligations which are in most respects separable into a single document or agreement. The rules for damages permit the separable components to be treated separately.
All the rules for monetary damages for breach of contract are premised on protection of the plaintiff’s…
Expectation interest (When a person enters into a contract with someone there is an expectation that the contract will be performed without breach)
What are expectation damages
Expectation damages are the damages sufficient to put the plaintiff in the position the plaintiff would have been in had the defendant not breached the contract.
What is the general formula for expectation damages
Loss in value plus other loss minus cost avoided minus loss avoided.
Loss in value is the difference between the performance the nonbreaching party should have received under the contract and what was actually received, if anything.
Other loss is consequential and incidental damages if any. Note mitigation expenses can be recovered, if reasonable, even if those particular expenses are not connected to a successful mitigation attempt.
Cost avoided are the additional costs the nonbreaching party can avoid by rightfully discontinuing performance under the contract as a result of the other party’s breach.
Lost avoided is the beneficial effects of the breach due to the nonbreaching party’s ability to salvage or reallocate resources that otherwise would have been devoted to performing under the contract.
What are incidental damages
Incidental damages are reasonable costs of finding a replacement after breach of contract. Incidental damages are always recoverable if the costs are reasonable.
What are consequential damages, a.k.a. special damages
Consequential damages are damages from breach due to the special needs or position of the buyer and are only recoverable if they were reasonably foreseeable by the breaching party at the time the contract was formed.
What are reliance damages
Reliance damages but the plaintiff in the same economic position she would have been in had a contract never been formed.
What is the measure of damages under quasi contract?
Restitution damages
Protection of the restitutionary interest restored to a party any benefit conferred to the other party. A party is entitled to restitution for any benefit that she has conferred by way of part performance in excess of the loss that she has caused by her own breach.
UCC monetary damages
Depend on who breaches and who is in possession of the goods. The key to UCC monetary damages is once again expectation damages.
Punitive damages for breach of contract?
Punitive damages are not available for breach of contract unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.
How do you determine the seller in barter contracts in which A and B agree to exchange A’s Xs for B’s Ys
If the issue involves X, A is the seller.
If the issue involves Y, B is the seller.
What are the limitations on damages for breach of contract
Duty to mitigate, reasonable certainty, causal, foreseeable at time of contract.
What happens if expectation damages are too uncertain?
 When expectation damages are too uncertain, the court turns to reliance and restitution damages.
Liquidation damages clauses are valid if
- Damages are difficult to ascertain at the time of contract formation
- The forecast of damages is reasonable
- The damages cannot be a penalty
A liquidated damages clause is presumptively invalid when
The damages figure is a single set number no matter what the breach
A liquidated damages clause is presumptively valid when
The damages figure is a sliding scale that adjusts based on some variable.
Requirements for the equitable remedy of specific performance of a contract
- Valid, definite, and certain contract.
- Mutuality
- Legal remedy inadequate
- Plaintiff has fully performed all obligations under the contract
- Enforcement feasible
Is specific performance available for sale of real estate contracts
Generally specific performance is available for sale of real estate contracts. However if there is a bona fide purchaser after the breach, specific performance is not available as a remedy.
Is specific performance available for service contracts
The court cannot force the defendant to perform under a service contract. However, the court does have discretion to grant injunctive relief prohibiting the defendant from performing similar services.
Specific performance available for sale of goods contract
Under the UCC, specific performance is available for unique goods or other appropriate circumstances a rise in the market price by itself, however, is generally not sufficient to justify the remedy of specific performance.
Under the UCC, a seller may recover goods from an insolvent buyer if
-The buyer was insolvent when the goods were received
-The seller demanded return of the goods within 10 days of the buyers receipt of the goods or a reasonable time if there is an expressed representation of solvency by the buyer at the time of receipt AND
-Buyer must still have the goods at the time of the demand.
If the goods are sold to a bona fide purchaser before the original sellers reclamation demand, reclamation is not available remedy.
For a third party beneficiary to have contract rights, the third-party beneficiary must have…
Known of and relied upon the contract.
Knowledge and reliance may be satisfied after the fact.
Must an intended beneficiary be identified at the time the contract is made In order to acquire right?
An intended third-party beneficiary can acquire rights under a contract whether or not the party is identified as an intended beneficiary at the time the contract is made.
What are the two types of intended beneficiaries
Donee beneficiary
Creditor beneficiary
What is a donee beneficiary
A third-party beneficiary is a donee beneficiary if the promisee made the contract in order to confer a gift on the third party
What is a creditor beneficiary
A third-party beneficiary is a creditor beneficiary if the promisee made the contract in order to discharge an obligation she owed to the third-party. The key is that the third-party was already a creditor of the promisee.
Do incidental third-party beneficiaries have contract rights?
Incidental third-party beneficiaries do not have contract rights, i.e. an incidental third-party may not sue the promisor.
The original parties will lose their power to discharge or modify the contract if the third party beneficiary
- Detrimentally relies on the promise
- Brings suit on the promise OR
- Manifest assent to the promise at the request of either party
Who can a third-party beneficiary sue for breach of contract?
A third party intended beneficiary may sue the promisor on the contract. The beneficiary does not waive her right to subsequently sue the promisee by suing the promisor.
A third-party Creditor beneficiary may sue the promisee but can only recover the value of the pre-existing debt.
A third-party donee beneficiary cannot sue a promisee.
May the premises to the promisor on the contract?
Yes, a promisee may sue the promisor on the contract. Note, however, that the party beneficiary and the promisee cannot both recover.
What is an assignment?
The present transfer of the rights or benefits under a pre-existing valid contract to a third-party.
Is a writing required for an assignment?
A writing is not required unless:
- Wage assignments
- Interest in land
- > $5,000
- Security Interest under Article 9 of the UCC
Is consideration required for a valid assignment
Since an assignment is a present transfer consideration is not required for a valid assignment.
Are gratuitous assignments valid and enforceable?
Yes. Because there is no consideration requirement, gratuitous assignments are valid and enforceable.
Are gratuitous assignments revocable
Yes. Gratuitous assignments are generally freely revocable. However, gratuitous assignments may become irrevocable if the assignee relies to her detriment on the assignment, the obligor pays or performs for the assignee, the assignor puts the assignment in writing, or the assignor delivers a symbolic document to the assignee.
When is a gratuitous assignment automatically revoked
If the assignor dies
If the assignir makes a subsequent assignment
If the assignor gives notice to the assignee or the obligor that the assignment has been revoked
Is a promise to transfer one’s contract rights in the future and assignment?
No. For an assignment to be valid, there must be present assignment language.
Will language of prohibition in a contract invalidate an assignment?
Language of prohibition does not invalidate an assignment unless the assignee knew of the prohibition. An assignor, however, can be held liable for breach of contract.
Will language in a contract that invalidates any assignment render an assignment ineffective?
Language that invalidates any assignment will render any assignment ineffective. If assigned, assignee cannot enforce assignment against obligor, and assignor will be liable for breach of contract.
Even if there is no restriction on assignment in the contract, common law will invalidate what assignments
Assignments that substantially change the duty of the obligor.
Assignment of the right to payment does not substantially change the duty of the obligor.
Assignment is invalid where the contract is for unique personal services.
Requirement and output contracts are not assignable if assignment alters the quantity required in an unreasonably disproportionate manner.
From whom can an assignee recover?
An assignee can recover from the obligor directly. Note payment by the obligor to the assignor is legally effective until the obligor is notified of the assignment.
The assignor cannot recover from obligor after assignment for consideration.
The assignee can recover from the assigned door call me if the assignment was for consideration.
If an assignment was made for value, the assignor is held to have made a series of
Implied warranties to the assignee:
The right assigned actually exists
The right assigned is not subject to any defenses by the obligor
There is an implied warranty that any documents delivered to the assignee by the assignor are genuine
The assignor will not take any action that will impair the value of the assignment.
With gratuitous assignments, if the assignor assigns to multiple assignees, which gratuitous assignment prevails?
Generally the last. Unless there was an irrevocable gratuitous assignment.
If an assignor assigns to multiple assignees for consideration which assignee prevails?
The first assignee who pays any consideration prevails unless the later assign he did not know of earlier assignment and does one of the following:
Obtains payment or judgment from the obligor first
Obtains new contract from the obligor by novation OR
Possesses some indicia of ownership
What is a delegation?
One party to a contract transfers the duty to perform under the contract to a third-party.
Delegations are valid unless
- The contract prohibits delegation or prohibits assignments
- If the contract calls for the special skills or reputation of the delegator, then performance under this contract cannot be delegated to a third-party even if that third-party has equal or greater skill.
If the deligatee Does not perform is the delegating party liable
Absent consent by the obligee or performance by the delegatee, an effective delegation does not relieve the delegator of its duty to the obligee.
When there is delegation without consideration, obligee cannot sue the delegatee but can sue delegator.
When there is delegation for consideration, the obligee can sue the delegatee or delegator.
