CONTRACTS Flashcards
APPLICABLE LAW
Article 2 of the UCC governs contracts for sale of goods. Goods are defined as movable things. Otherwise, common law dictates, unless it’s a mixed contract, where the predominant purpose of the contract will determine the appropriate law.
CONTRACT FORMATION
Contract formation requires:
(1) An Offer;
(2) An Acceptance;
(3) Consideration; and
(4) There must be no appropriate defenses to contract formation
OFFER
An offer is:
(1) A manifestation of the intent to enter into a contract;
(2) With definite or reasonably certain terms,
(3) That is communicated to an identified offeree
MERCHANT’S FIRM OFFER (UCC)
An offer is not revocable if it is made by a merchant, in a signed writing, that gives assurances that it will be held open for period that is stated in the writing.
If no time is stated, a reasonable time not to exceed 90 days.
ACCEPTANCE
Acceptance requires a manifestation of assent to the terms of the offer.
For BILATERAL contracts, the start of performance manifests acceptance.
For UNILATERAL contracts, starting performance only renders a contract irrevocable, where acceptance exists only when performance is complete. If beginning performance, an offeree must inform the offeror of completion within a reasonable time of completion of performance.
RETRACTION OF UNILATERAL OFFER
A unilateral offer may be retracted either by lapse of a reasonable time or earlier by effective revocation.
REVOCATION
A revocation is the retraction of an offer by the offeror and is only valid if communicated to the offeree before acceptance.
COUNTER-OFFER
A counteroffer is a response made by the offeree to the offeror that contains the same subject matter as the original offer but differs in terms. It operates as a rejection of the original offer as well as a new offer.
CONSIDERATION
Consideration is a bargained for exchange of something of legal value. Courts generally will not question the adequacy of consideration - a mere peppercorn may suffice.
ILLUSORY CONTRACT
An illusory contract is an attempt to contract, however, is not legally binding.
For example, “I will buy…if I decide to.” is an illusory contract because it does not offer an actual detriment. If the contract says a party can cancel before a certain date, it is illusory until that date, however, a binding contract after that date.
IMPLIED IN FACT CONTRACT
A contract based on a tactic promise, inferred when conduct creates a contract, a benefit was received that could have been refused, and it would be fair to presume payment was expected.
OPTION CONTRACT
An offer is not revocable if the offeree gives consideration for a promise by the offeror to refrain from revoking an offer for either a stated period time, or reasonable time if no time is specified.
Option contracts are an exception to the mailbox rule, and are accepted UPON RECEIPT, not upon mailing.
MUTUAL MISTAKE
DEFENSES TO CONTRACT FORMATION
A contract is voidable (meaning it may be rescinded or reformed) when both parties are mistaken as to a basic assumption on which the contract is made, the mistake is material to the contract AND the party asserting the mistake did not bear the risk of the mistake.
UNILATERAL MISTAKE
DEFENSES TO CONTRACT FORMATION
A mistake by one party that is unknown to the other party, concerning a basic assumption that has a material effect.
A unilateral mistake is generally not a valid defense to formation of a contract but can be if one party knew or had reason to believe that the other party was mistaken, or the non-mistaken party had a duty to disclose.
CONTRACTUAL CONDITIONS
A condition makes a performance obligatory only when the condition occurs.
Concurrent conditions occur simultaneously, but each functions as a condition precedent to the other.
BREACH
A contract breach occurs when a party fails to perform when:
(1) Conditions precedent are satisfied;
(2) Time to perform arrives; and
(3) Performance is not discharged.
MINOR OR MATERIAL BREACH
If a party does not receive the substantial benefit of their bargain, the breach is material and:
(1 )They are no longer obligated to continue their performance under terms of the contract, and
(2) Will have an immediate right to all remedies for breach of the entire contract, including total damages.
A breach of a contract is minor if a party gains the substantial benefit of their bargain despite defective performance. A minor breach does not relieve the aggrieved party of performance under the contract, it merely gives them a right to damages for the minor breach.
STATUTE OF FRAUDS
The following contracts are invalid unless they are in writing:
(1) Marriage
(2) A contract that cannot be performed within 1 year
(3) Land sale or land leases for over a year in length
(4) Executor guarantees to pay
(5) Contracts for the sale of goods valued over $500
(6) Suretyships
Writings must be signed by the party charged, reasonably identify the subject matter, indicate there is a contract and state the essential terms.
Where there is part performance which unequivocally indicates acceptance, a party will be estopped from claiming there was no contract based on a lack of a writing. Can be a number of writings, no need for only one signed document. E-mail messages suffice, including signatures or not.
EXCEPTION TO THE STATUTE OF FRAUDS
(1) Full performance
(2) Judicial acknowledgment of the agreement
(3) Estoppel
NOTE: The promise will not fall under the SOF when the purpose of making the guarantee was to benefit the person making the promise.
UCC STATUTE OF FRAUDS EXCEPTIONS
(1) Merchant’s confirmatory memorandum [the other party does not object in a reasonable time]
(2) The goods are accepted and paid for
(3) Custom made goods
(4) Party admission of contract formation
MODIFICATIONS
Under common law, contract modifications must be supported by consideration. Exceptions include when there is a change in the performance of a promise, if a fair and equitable modification is due to a changed circumstance, and the contract is not yet fully performed by either party.
Under the UCC, consideration is not required for contract modifications made in good faith.
PARTIAL PERFORMANCE
Requires two of three:
(1) Payment in whole or in part
(2) Possession, OR
(3) Valuable improvements
PAROL EVIDENCE RULE
A party cannot introduce evidence of a prior or contemporaneous agreement that contradicts a later integrated writing.
Exceptions include proof of a condition, clerical error, to establish a defense of formation, to interpret vague terms, or supplement a contract that is only partially integrated.
For example, if the price is wrong in the contract but was agreed upon previously ⇢ This is a mistake in integration, so it is admissible to reform the contract.
If the contract contains no time or date of completion, or no merger clause, then assume the contract is only partially integrated.
CONDITION PRECEDENT
Renders performance conditioned upon the completion of the condition.
Two exceptions:
(1) When the protected party fails to cooperate in good faith (a party will buy if they get the loan, but then they don’t bother to apply for one)
(2) When the protected party voluntarily excuses the condition.
FRUSTRATION OF PURPOSE
Frustration of purpose discharges performance under a contract if the purpose of the contract no longer exists.
Performance is excused if:
(1) The principal purpose is substantially frustrated;
(2) By an unforeseeable supervening event; AND
(3) Both parties knew the purpose at formation
IMPOSSIBILITY
IMPOSSIBILITY DISCHARGES performance if it would be objectively impossible to perform due to unforeseen circumstances.
DURESS
Duress is a wrongful pressure exerted upon a person in order to coerce that person into a contract that he or she ordinarily wouldn’t enter.
