Contracts Flashcards
Crossing Offers
If offers stating precisely the same terms cross in the mail, they do NOT give rise to a contract despite the apparent meeting of the minds.
(An offer cannot be accepted if there is no knowledge of it.)
Anticipatory Repudiation
When a party gives notice to another that it will be unable to fill its obligation under the contract.
-The buyer may treat the anticipatory repudiation as a total breach and pursue his breach of contract remedies, or suspend his performance and await the seller’s performance for a commercially reasonable time.
Indemnity
The principle of indemnity permits a shifting between the tortfeasors of the entire loss (i.e., the payment made to satisfy plaintiff’s judgment).
–Indemnity is available in vicarious liability situations, where one party is held liable for damages caused by another simply because of his relationship to that person.
–A company’s requirement that an employee be on call 24 hours a day merely establishes that the company will be vicariously liable for the employee’s negligence; it does not bar the company from recovering from the employee because the employee’s negligence actually caused the damage.
Contribution
Apportions the loss (i.e., the payment made to satisfy plaintiff’s judgment) among those who are at fault.
Rescission
When both parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party if:
(i) the mistake concerns a basic assumption on which the contract is made;
(ii) the mistake has a material effect on the agreed-upon exchange; and
(iii) the party seeking avoidance did not assume the risk of the mistake.
Frustration of Purpose
Frustration will exist where the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge.
To establish frustration, the following must be shown:
(i) there is some supervening act or event leading to the frustration;
(ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;
(iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and
(iv) the purpose of the contract was realized by both parties at the time of making the contract.
Modifying Agreement
If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. Generally, a modifying agreement must be mutually assented to and supported by consideration.
– If parties agree to modify their contract, consideration is usually found to exist where the obligations of both parties are varied. It is usually immaterial how slight the change is, because courts are anxious to avoid the preexisting duty rule.
–Generally, if a modification will benefit only one of the parties, it may be unenforceable without some consideration being given to the other party.
–If, however, a promisee has given something in addition to what he already owes in return for the promise he now seeks to enforce, or has in some way agreed to vary his preexisting duty, there is consideration.
–E.g., Contractor’s agreement to vary his contractual duty by promising to perform all of the work by a date earlier than that originally agreed to constitutes consideration sufficient to support the businesswoman’s promise to pay the additional $50,000.
Can a modification be enforceable without consideration?
Under the modern view, a modification is enforceable without consideration if the modification is fair and equitable in view of the unanticipated circumstances.
Installment Contracts
The contract authorizes or requires deliveries in separate lots, and since it involves the sale of goods, Article 2 of the UCC applies.
When may a buyer declare a total breach of an installment contract?
Under Article 2, a buyer may declare a total breach of an installment contract only if the defect substantially impairs the value of the entire contract.
Parol Evidence Rule
Under the parol evidence rule, where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, any expression made prior to the writing and any oral expression contemporaneous with the writing is inadmissible to vary the terms of the writing.
–However, where it is asserted that there was an oral agreement that the written contract would not become effective until the occurrence of a condition, evidence of the oral agreement may be offered and received.
Waiver of condition
One having the benefit of a condition may indicate by words or conduct that he will not insist upon it.
When a condition is broken, the beneficiary of the condition has an election: (i) he may terminate his liability; or (ii) he may continue under the contract. If a choice is made to continue under the contract, the person is deemed to have waived the condition.
Damages for Defective Goods
When a buyer accepts goods that turn out to be defective, he may recover as damages any “loss resulting in the normal course of events from the breach,” which includes the difference between the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages
Incidental Damages
Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, and transportation, care, and custody of goods rightfully rejected.
–Note: When a buyer breaches by repudiating his offer, the seller has a right to recover his incidental damages plus either the difference between the contract price and the market price or the difference between the contract price and the resale price of the goods, reduced in either case by any expenses saved as a result of the breach.
Consequential Damages
Consequential damages resulting from the seller’s breach include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise, and injury to person or property proximately resulting from any breach of warranty.
Affirming a Contract
Although infants generally lack capacity to enter into a contract that is binding on themselves, an infant may affirm, i.e., choose to be bound by his contract, upon reaching majority.
Affirmance may be either express or by conduct, e.g., failing to disaffirm the contract within a reasonable time after reaching majority. Disaffirmance discharges all liability.
Modifying Agreements and the Statute of Frauds
A contract in writing may be modified orally unless the modification brings the contract within the Statute of Frauds or, in UCC cases, the contract provides that modifications must be in writing. Even if the contract had prohibited oral modifications, parties in non-UCC cases may alter their agreement orally in spite of such a provision as long as the modification is otherwise enforceable.
–Consider: Is the K for the sale of goods valued at $500 or more, or can it be completed within a year? A promise that by its terms cannot be performed within a year is subject to the Statute of Frauds and must be evidenced by a writing signed by the parties sought to be bound. If the contract can be completed within one year, it need not be in writing.
Written Contracts w/ Condition Precedents
Generally, under the parol evidence rule, when the parties express their agreement in a writing with the intent that it embody the final expression of their bargain, any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing.
However, if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received. The rationale is that the written agreement is not being altered by parol evidence because the written agreement never came into being.
Third-Party Beneficiaries vs. Assignees
If a contract between two parties contemplates performance to a third party, that third party may have rights to enforce the contract. To do so, the third party must be an intended beneficiary at the time the contract was made (e.g., designated in the contract).
An assignment, on the other hand, is a contract that does NOT contemplate performance to a third party when the contract is made. Rather, later one of the parties transfers his rights to another.
What is the effect of a period of acceptance being stated in the offer?
If a period of acceptance is stated in an offer, the offeree must accept within that period to create a contract. Failure to timely accept terminates the power of acceptance in the offeree (i.e., a late acceptance will not be effective and will not create a contract).
–Note: Under the mailbox rule, an acceptance generally is effective upon dispatch (i.e., the acceptance creates a contract at the moment it is mailed or given to the delivery company). HOWEVER, the mailbox rule does NOT apply where the offer states that acceptance will not be effective until received. In the latter case, acceptance is effective only upon receipt.
Restitution
Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. Restitution can provide a remedy when: (1) a contract exists and has been breached; (2) a contract is unenforceable; or (3) in some cases when no contractual relationship exists at all between the parties.
Generally, the measure of restitution is the value of the benefit conferred. Although this is usually based on the benefit received by D (e.g., the increase in value of D’s property or the value of the goods received), recovery may also be measured by the “detriment” suffered by P (e.g., the reasonable value of the work performed or the services rendered) if the benefits are difficult to measure or the “benefit” measure would achieve an unfair result.
–When a contract is unenforceable or no contract between the parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law contract, an action in quasi-contract, or an action for quantum meruit.
–When a contract has been breached and the nonbreaching party hasn’t fully performed, they may choose to cancel the contract and sue for restitution to prevent unjust enrichment. Note: IF P HAS FULLY PERFORMED, they are limited to their damages under the contract.
–Note: Always keep the quasi-contract remedy in the back of your mind. Look first for a valid contract allowing P relief. But if there is no valid contract, quasi-contract may provide a remedy if P has suffered a loss or rendered services.
Breaching Party Attempting to Collect on a Partially Performed Contract
Under some circumstances, P may seek restitution even though P is the party who breached. If the breach was intentional, some courts won’t grant the breaching party restitution; modern courts, however, will permit restitutionary recovery bit limit it to the contract price less damages incurred as a result of the breach.
–Note: Generally, when there is a breaching party attempting to collect on a partially performed contract, you should consider: (1) substantial performance, (2) divisibility, and (3) restitution – in that order.
Restitution of Advance Payments or Deposit If Buyer of Goods Breaches
If the buyer has paid part of the purchase price in advance and then breaches the contract, they can usually recover some of the payments.
Unless the seller can prove greater damages, they may keep advance payments totaling 20% of the purchase price or $500, whichever is less. The balance must be returned to the buyer.
–If there is a valid liquidated damages clause, the seller need refund only the excess of the buyer’s payments over the amount of liquidated damages.
When No Contract Involved – Quasi-Contract Remedy
Restitution may also be available in a quasi-contract action when there is no contractual relationship between the parties if:
(1) P has conferred a benefit on D by rendering services or expending properties;
(2) P conferred the benefit w/ the reasonable expectation of being compensated for its value;
(3) D knew or had reason to know of P’s expectation; and
(4) D would be unjustly enriched if he were allowed to retain the benefit w/o compensating P.
