Contracts Flashcards
Under the merchant exception to the UCC statute of frauds, a confirmation signed and sent by one merchant to another binds both parties if the recipient has reason to know its contents and does not object within how many days?
10 days
Ex: A ski-shop operator requested gloves for $600. The manufacturer orally accepted and faxed a signed memo confirming the agreement.
What does the common law apply to?
everything but the sale of goods including contracts for real estate and services
What are the three party beneficiaries that can enforce a contract entered into by other parties?
intended, creditor, donee [D
IC]
a contract is best characterized as
A legally enforceable agreement
For the parol evidence rule to apply, there must be a
written agreement and an earlier written or oral statement about the agreement.
what is a novation?
the substitution of a new contract that releases the obligor from his promises under the original agreement
Generally, if multiple assignments of the same rights are made without consideration…
the last assignee enjoys the assigned rights
For a third party to qualify as an intended beneficiary, both the promisor and the promisee…
must have intended to convey enforcement rights to the third party in the event of a breach
What is the main difference between contract modification under the common law and contract modification under the UCC?
Common law modifications require consideration (unless modification is fair and equitable due to unanticipated circumastances); under the UCC, only good faith is required.
+In the UCC, a modification can be made without consideration. Ex: contract to sell books and buyer later offers to include the bookshelf for free if the buyer accepts.
What does a court consider when determining if restitutionary recovery is available in a quasi-contract situation?
The plaintiff has conferred a measurable benefit without gratuitous intent;
and it would be unfair to let the defendant retain the benefit
What requirements must be met to allow an adversely affected party to void a contract based on mutual mistake?
Mistake of material fact existed at the time the contract was formed
The adversely affected party did not assume the risk of the mistake.
Under the common law, if the breach is material, what remedies can be sought by the nonbreaching party?
The nonbreaching party is able to withhold any promised performance and pursue remedies for breach, including damages.
Under the UCC, what is required by the “perfect tender rule”?
The perfect tender rule requires perfect goods and perfect delivery. “Perfect” means in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender.
Define offer [entire rule statement]
An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree. . The offer must include definite and certain terms and be communicated to an identifiable offeree. The UCC finds an offer more easily.
Under the UCC, even if the terms of a written contract for the sale of goods appear to be unambiguous, what evidence can be presented to explain or supplement the contract?
Course of performance, course of dealing, and trade usage.
Under the common law, what terms must be covered in order for a contract to be formed?
All essential terms meaning: the parties, subject matter, price, and quantity
Under the UCC, in what two circumstances does the seller have a right to cure a defective tender?
The time for performance under the contract has not yet elapsed; or
The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity.
What is the difference between a gift and valid consideration?
whether the offeree could have reasonably believed that the intent of the offeror was to induce the action.
If yes, there is consideration and the promise is enforceable.
What are the requirements of a writing for contracts that fall under the Statute of Frauds?
The writing must:
Be signed by the party against whom enforcement is sought; and
Contain the essential elements of the deal.
+The signature requirement is met if an identifying mark from the party against whom enforcement is sought reflects an intent to authenticate the writing. Ex: An email that has the parties’ names below the word “signed” shows their desire to be bound.
When a preexisting duty is at issue, what two options does a promisor have to create valid consideration?
The promisor can:
Give something in addition to what is already owed or
Vary the preexisting duty in some way
If a SHIPMENT contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?
Once the goods are delivered to the carrier
What is an output contract?
An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer.
If a DESTINATION contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?
Once the goods are delivered to a particular place, as specified in the contract
What three conditions must be met for the defense of impracticability to be available?
An unforeseeable event has occurred;
Nonoccurrence of the event was a basic assumption on which the contract was made; and
The party seeking discharge is not at fault.
At what point can repudiation no longer be retracted?
Repudiation may be retracted until such time as the promisee acts in reliance on the repudiation, signifies acceptance of the repudiation, or commences an action for breach of contract.
Define condition precedent.
A condition that precedes the obligation to perform
What are the three events that would cause the rights of an intended beneficiary to vest?
- Beneficiary materially changes position in justifiable reliance on the rights created;
- Beneficiary manifests assent to the contract at one party’s request; OR
- Beneficiary files a lawsuit to enforce the contract.
Ex: A widow and widower were engaged to be married. After some discussion as to how to pay for the wedding, the son of the widow and the daughter of the widower each orally agreed to give $50,000 to the other’s parent as a gesture of approval of the upcoming union. The son and daughter shook hands in agreement as to the arrangement, but before either gift had been made, the two became embroiled in a serious disagreement, and both agreed to forego making the gifts. In spite of this, the son of the widow did make a gift of $50,000 to the widower at the time of the wedding. Soon after the marriage of the widow and widower, the widower died. Subsequently, the widow learned of the arrangement and sued the daughter of widower to compel her to pay $50,000. Is the widow likely to prevail? NO. None of the three situations in which an intended beneficiary’s rights vest ever occured.
Define condition subsequent.
A condition that excuses the duty to perform after a particular event occurs
When is the warranty of fitness for a particular purpose implied, and how is it disclaimed?
The warranty of fitness for a particular purpose is implied whenever the seller has reason to know that (i) the buyer has a particular use for the goods, and (ii) the buyer is relying upon the seller’s skill to select the goods. A disclaimer must be in writing and be conspicuous.
Ex: An artist explained to an employee of the merchant that the artist wanted to purchase a tool that could cut through steel. The employee suggested that the artist purchase a particular saw. The employee, said that the saw “should cut through steel with no problem.” The artist purchased the saw. Conspicuously appearing on the webpage where the artist had to indicate his consent in order to purchase the saw was the following: “There are no implied warranties provided with this product other than the general warranty of merchantability.” This was a valid disclaimer of the warranty of fitness for a particular purpose
Counter ex: A sales associate does not know the purpose for which the seamstress was buying a sewing machine but pointed out which one was the best. She bought it and it would not sew through thick leather. But there was no implied warranty for a particular purpose.
How is a unilateral offer accepted?
Acceptance of an offer for a unilateral contract requires complete performance.
What is the basic concept of legal detriment?
An exchange for the promise that is to be enforced.
When is a plaintiff entitled to restitutionary recovery, and how is it measured?
When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover the benefit conferred by the plaintiff upon the defendant. Generally, the benefit is measured by either (i) the reasonable value of the defendant obtaining that benefit from another source, or (ii) the increase in the defendant’s wealth from having received that benefit.
Name the types of contracts that fall within the Statute of Frauds.
[M. SOUR]
marriage, suretyship, one year, UCC goods over $500, real property.
+the creation of a right of survivorship must comply with the SoF because it is considered a real estate contract
State the common-law mirror-image rule.
The common-law mirror-image rule states that the acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.
The mirror-image rule does NOT apply to a sale of goods
Define incidental beneficiary.
One who benefits from a contract even though there is no contractual intent to benefit that person
+Ex: There is a contract between a hospital and a janitorial company to clean. Because of a failure to clean a room, a patient gets an infection. However, the patient cannot sue the janitorial company for breach of contract because the patient is only an incidental beneficiary
When may a nonbreaching party pursue specific performance as a remedy?
When damages are an inadequate remedy, the nonbreaching party can pursue specific performance.
Define fraud in the factum, and state its effect on a contract.
when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction. No contract is formed, and the apparent contract is VOID.
Define fraud in the inducement, and state its effect on a contract.
Fraud in the inducement occurs when a fraudulent misrepresentation is used to induce another to enter into a contract. The contract is VOIDABLE by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.
What is a requirements contract?
A requirements contract is a contract under which a buyer agrees to buy all that is required of a product from the other party.
When is a revocation of an offer, sent by mail, effective?
Upon receipt.
Under the Second Restatement, can an extrinsic term that would “naturally be omitted” from a writing be introduced?
Yes, so long as it does not contradict the writing.
What are three forms of consideration?
Consideration can take the form of:
- A return promise to do something or refrain from doing something legally permitted
- The actual performance of some act
- Refraining from doing some act
What is the difference between an assignment and a delegation?
An assignment is the transfer of rights under a contract, and a delegation is the transfer of duties and obligations under the contract.
If a party has substantially complied or performed with a constructive condition, what can the party recover?
In general, the party can recover the contract price minus any amount that it will cost the other party to obtain the promised full performance.
Under the UCC, what three requirements must be met for an offer to buy or sell goods to be an irrevocable firm offer?
(i) The offeror is a merchant;
(ii) There is an assurance that the offer is to remain open; and
(iii) The assurance is contained in a signed writing from the offeror.
What types of contracts are governed by the UCC?
Any contract involving the sale of goods
Define acceptance.
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.
Define accord
An agreement to accept a performance from the other party that differs from the performance that was promised in the original contract. Consideration is required.
Define satisfaction
performance of an accord agreement; it will discharge both the original contract and the accord contract.
Define consideration.
bargained-for exchange of legal positions between the parties
Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.
Define the parol evidence rule.
The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the contract as written. An agreement AFTER would not be affected by this rule
+such evidence is admissible to determine remedies for breach (e.g., to prove the foreseeability of consequential damages when an electric company told a manufacturer that late delivery could lead to not providing energy for an entire town)
Under the mailbox rule, when is acceptance effective?
An acceptance that is mailed properly (i.e., correct postage and address) within the allotted response time is effective when sent as opposed to on receipt, unless the offer provides otherwise.
+This rule can be overridden because the offeror is master of the offer (e.g., acceptance must be received, not sent, by a set date)
Ex: A violinist received an offer by mail to play a concerto. She accepted by mailing a letter. Later that day she realized she had a conflict and could not play so she called the orchestra manager. Regardless, the acceptance by letter controls (unless detrimental reliance occurs)
Under the UCC, when both parties are merchants, an additional term in the acceptance is automatically included in the contract, unless:
(i) The term materially alters the original contract (e.g., limits remedies); or
(ii) The offer expressly limits acceptance to the terms of the offer; or
(iii) The offeror has already objected to the additional terms, or objects within a reasonable time
+If the new term materially impacts the contract, the original terms still control
When is the implied warranty of merchantability implied, and how is it disclaimed?
The implied warranty of merchantability is implied whenever the seller is a merchant. The disclaimer can be oral, but must use the term “merchantability” and must be conspicuous if in writing. Language that indicates there is no implied warranty is sufficient (e.g., “as is” or “with all faults”).
Define the common-law four-corners rule.
Under the common law, a court was permitted to look only to the writing itself (within the “four corners” of the document) for evidence of intent (regarding whether there is total, partial, or no integration).
What is an implied-in-fact contract?
An implied-in-fact contract is a contract that results when a person’s assent to an offer is inferred solely from the person’s conduct. To be contractual bound, the person must not only intend the conduct but also know or have reason to know that the conduct may cause the offeror to believe the offer was accepted.
+There is a mutual intent to contract
+Ex: A contractor, thinking that he was paving a customer’s driveway, for which the contractor had an express contract, mistakenly paved the neighbor’s driveway while the neighbor looked on without saying anything or raising any objection
What is an illusory promise?
An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding (i.e., void).
How is a bilateral offer accepted?
An offer requiring a promise to accept can be accepted either with a return promise or by starting performance.
Define the material benefit rule.
Under the material benefit rule, when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration.
Ex: Shoveling snow for an elderly neighbor as a gift, but thinking “if anyone else used the sidewalk, he could charge them.” the shoveler can charge anyone who uses the sidewalk but not the elderly person because it was a gift.
What are the three requirements for promissory estoppel [remember when there is no K]?
1) reliance was reasonably foreseeable,
2) actual inducement, and
3) detrimental reliance such that injustice can be avoided only by enforcement of the promise.
Define constructive condition of exchange.
When a party’s performance can be rendered at the same time as the other party’s performance, each party’s performance is conditioned on the other party’s performance; both parties’ performances are due simultaneously, unless the language or circumstances indicate otherwise
What is the difference between a void and voidable contract?
A void contract results in the entire transaction being regarded as a nullity, as if no contract existed between the parties; the contract is unenforceable.
A voidable contract operates as a valid contract unless and until one of the parties takes steps to avoid it.
What happens to a gratuitous assignment—i.e., an assignment that is not supported by consideration—when the assignor dies, is incapacitated, or bankrupt?
the gratuitous assignment is automatically revoked
When is the acceptance of a firm offer, option, or other irrevocable offer effective?
when the acceptance is received by the offeror
What are the 5 factors considered in determining a material breach?
BELTS materials
- Bad faith/willfulness
- Extent to which nonbreaching party will suffer loss
- Likelihood of cure by breaching party
- Time is not of the essence
- Substantial performance
What happens if an offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer?
the offer is automatically revoked (i.e., constructive revocation) and can no longer be accepted.
When can a plaintiff recover under a quasi-contract theory—despite having no contractual relationship with the defendant?
the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.
Ex: A rancher takes care of a horse that comes onto his property during a storm. The rancher is then entitled to reimbursement for the expense (food, vet visit).
What happens if the offeror dies, but the option contract still exists?
The offer will not terminate upon the offeror’s death because consideration was paid to keep the offer open for a specified period of time.
What are the five ways an offer can be terminated?
revocation, rejection, counteroffer, lapse of time, death/permanent mental incapacitation
What are the defenses to the formation of a contract? [basically no K was ever formed]
[MUM IF ID CUM] mistake undue influence mistake incapacity fraud/misrepresentation illegality duress condition precedent not met unconscionability mutual assent
What are the 6 defenses to the enforcement of a contract?
SUFIII
statute of frauds unconscionability frustration of purpose impossibility impracticability illegality
What are the eight possible remedies available for breach of contract?
PENCILS RRR
punitive expectation nominal consequential incidental liquidated specific performance restitution replevin reliance
What are the three element that must be shown to award consequential damages?
foreseeability, causation, certainty (of calculation) [FCC]
What universe does building a fence fall under in which the contract consists of paying for materials and service?
The predominant purpose is a service, building a fence, so it is in the common law universe.
Which universe is a contract to pay to write four computer programs?
This is a services contract, so it is in the common law universe
What are gaps that cannot be filled by the UCC?
quantity, identity, subject matter
When does the warranty of merchantability apply?
when the seller is a merchant in the goods sold
What happens when the subject matter of an offer is destroyed?
the offer is terminated
When is it not permitted to delegate contractual duties?
when the other party to the contract has a substantial interest in having the delegating party perform or;
the contract prohibits delegation
Under the doctrine of promissory estoppel, a party’s promise to make a gift is enforceable when:
(1) the promisor should reasonably expect the promisee to rely on the promise,
(2) the promisee detrimentally relies on the promise, and
(3) injustice can be avoided only by enforcement of the promise.
Ex: An uncle promised to give $5k to a spendthrift nephew on his birthday new month and said you’d better spend it wisely or you’ll never get another dime. The spendthrift then signed a contract for a car to pay a $5k down payment on his birthday. The promise to pay is unenforceable, but through promissory estoppel this is now enforceable
What happens if the buyer in a requirements contract later buys from another seller?
this purchase violates the implied duty of good faith and constitutes a breach of contract
During a reserve auction, can the auctioneer withdraw goods from auction prior to completion of the sale (e.g., before the auctioneer’s hammer falls)?
Yes in a reserve auction, which is the presumptive type. In a no-reserve auction, this cannot happen.
What happens if a debt is certain and undisputed?
payment cannot be for a lesser amount, even if the creditor cashes the check.
When can an accord be worth less than what was owed under the original contract?
That consideration can be worth less than what was agreed to in the original contract only if:
1) there is a good-faith dispute as to the amount owed or
(2) the new consideration is of a different type than what was owed under the original contract.
Is a new promise to pay a debt after the statute of limitations has run enforceable, even though there is no consideration?
yes
What are some ways that the warranty of merchantability can be disclaimed for defects that an examination would have revealed?
- the buyer examines the goods as fully as desired before entering the contract
- the buyer refused to examine the goods before entering the contract
- “as is” or “with all faults” language
