contracts Flashcards
Applicable law
UCC = sale of goods (all things moveable at time of identification of k)
common law = all other k
mixed k = the predominate purpose of the k determines which law governs
requirements to form valid k
mutual assent, consideration, and no defenses to formation
mutual assent
offer by one party and acceptance by another party
offer
manifestation of intent to enter into a k with definite or reasonably certain terms, communicated to an identified offeree
termination of offer
offers can be terminated before acceptance by rejection/counter offer, lapse of time, revocation, or death/incapacity
revocation of an offer
an offer may be revoked at any time before acceptance through unambiguous words or conduct indicating an unwillingness or inability to k
indirect: when offeror takes definite action inconsistent with entered into k and offeree has knowledge of that action
irrevocable offers
option k - consideration given to keep offer open for a certain period
exception: rejection of or counter offer does not constitute termination of option k or firm offer - the offeree can accept within that time as long as offeror has not detrimentally relied on the rejection
merchant firm offer - offer by merchant, in signed writing, stating offer will be held open for certain period not greater than 3 months
beginning performance on unilateral k makes the offer irrevocable – must give reasonable time to perform
acceptance
manifestation of assent to terms of the offer
performance may be adequate:
bilateral k –> start of performance manifests acceptance
unilateral k –> acceptance occurs on completion
timing of acceptance and revocation
acceptance –> offer is accepted when sent or communicated (mailbox rule: acceptance sent by mail is deemed accepted once placed in mail unless option k where acceptance must be received by date specified)
revocation –> offer is revoked when received by offeree. cannot revoke after acceptance
battle of the forms
Common law: mirror image rule - acceptance must exactly mirror the offer; any variations is a counter offer
UCC: acceptance does not have to mirror offer. additional terms are included only if:
- both parties are merchants
- term is not a material change (likely to cause hardship/surprise)
- offer does not expressly limit acceptance to exact offer and
- no objection was made within reasonable time
if one party is not merchant, then additional terms are not included, and viewed as proposal to modify the k
different terms: either treated same as additional terms or knock out rule applies
knock out rule: conflicting terms in offer and acceptance are knocked out and filled by gap fillers in UCC
implied in fact contract
created by conduct if the conduct is intentional and each party knows or has reason to know the other party will interpret the conduct as an agreement
indefinite or absence of terms
if terms of an agreement are not certain, then it is not enforceable.
indefinite duration = invalid
UCC - if both parties are merchants, only essential term is quantity. if no agreement on price, reasonable price term will be supplied by UCC
consideration
bargained for exchange of any act or forbearance that benefits promisor or causes detriment to promisee
past/moral consideration –> not sufficient
merchant firm offer –> no consideration req
illusory promise –> invalid; occurs when one party has no obligation to perform (both must be bound or neither are bound)
exceptions to consideration
material benefit/unjust enrichment rule: a promise made in recognition of a benefit previously received is binding to extent necessary to prevent injustice but not applied when conferred as gift or value of promise is disproportional to benefit conferred
promissory estoppel: applies when a party reasonably and foreseeably relied to his detriment on other party promise, the promisor reasonably expected reliance, and it is necessary to avoid injustice
modification of k
pre-existing duty rule: at common law, past performance or pre-existing duty is not adequate consideration
exceptions: an addition or change in performance or fair and equitable modification due to severe unanticipated circumstances & k isnt performed by either party
UCC: no additional consideration req to modify k as long as in good faith
must be in writing is SOF or OG k states modifications have to be in writing
defenses to enforceability
- incapacity: persons under 18 (unless k for necessaries), lack of mental capacity (cannot understand meaning and effect of k)
effect: k is voidable by person lacking capacity - duress: two types
physical compulsion: contract is void if a person physically compels another to agree to sign k
economic duress: contract is voidable when improper threat is made, that induces party, who has no reasonable alternative, to enter into a k
*mere threat to breach a k without more is insufficient - undue influence: unfair persuasion of a person who is either under the domination of a person exercising influence or justified in assuming the other person will act in their best interest b/c of relationship b/t them
effect: k is voidable by victim - mistake: two types
mutual: k is voidable (rescinded) if both parties are mistaken as to a basic assumption, the mistake is material, and the person asserting the mistake did not bear risk of the mistake (no meeting of minds)
unilateral: generally not a defense - mistake by one party, that is unknown to the other party, concerning basic assumption, that has material effect on k
- -> k is voidable by mistaken party if one party knew or had reason to know of the mistake or the mistake makes k unconscionable - misrepresentation: k is voidable by injured party where person knowingly made a false representation of material fact and the other party reasonably relied on the representation
generally, no duty to disclose unless fid relationship, necessary to correct earlier mistake, active concealment, or seller of real property knows material facts affecting value - illegality/public policy: will not be enforced. void if the illegality existed at the time of k formation. performance is discharged if k subsequently became illegal. if one party did not know of illegality, then the k is voidable by innocent party
- unconscionability: when k term shocks the consciousness of the court. usually need both procedural unconscionability ( one party has superior bargaining position and uses it to advantage) and substantive unconscionability (k terms so obviously unfair and one-sided)
effect: court may enforce w/o unfair terms or limit application of term
SOF
k is not valid unless in writing signed by party to be charged.
writing must reasonably identify subject matter and state essential terms
applies to
- marriage k
- suretyship: promise to pay debt of another (no writing req if purpose was to benefit surety himself)
- k that cannot be fully performed in one year
- sale of real property or interest in land (exception: 2/3 payment, possession, improvement of prop)
- promise to pay estate debt from personal funds of the executor
- sale of goods for $500+ (exceptions: merchant confirmatory memo, goods accepted or paid for, custom made, admission during judicial proceeding)
• K modifications: a written k can be modified orally, but the modification must be in writing if the modification falls within the SOF
o Further, if an oral modification to an oral k puts the k into the SOF, then it must be in writing
equal dignity rule
when giving or entering an agreement authorizing someone to enter the deal on your behalf, it will fall into SOF if the underlying deal would fall into SOF
parol evidence
party cannot introduce a prior or contemporaneous agreement that contradicts a later final and exclusive written k must be (1) intended to be final expression of k and (2) fully integrated
exceptions:
1. correct clerical error
2. est defense against formation
3. interpret vague or ambiguous terms (but court will use plain meaning rule)
4. supplement partially integrated writing
5. reformation - party may seek reformation of unilateral mistake where there is misrepresentation
partially integrated writing = writing does not contain complete statement of all the terms (proof allowed if not contradicting)
fully integrated = complete and exclusive statement of terms that discharges any prior agreements
merger clause is evidence that writing is fully integrated
**does not apply to subsequent agreements
condition precedent
makes performance conditional upon completion of condition
condition is excused when the protected party fails to make good faith effort to satisfy the condition or waiver (voluntarily giving up condition), but waiver can be retracted if other party has not relied on it
obligation of good faith and fair dealing
every k contains implied obligation of good faith and fair dealing
UCC requires honesty in fact and observance of reasonable commercial standards of fair dealing
impossibility
performance is discharged when it is objectively impossible to perform b/c of death or incapacity of a person necessary to k, unanticipated destruction of subject matter, or a new, unanticipated law or regulation making performance extremely and unreasonably difficult or expensive
impracticability
performance is discharged when an event occurs after k formation that is unanticipated by both party making performance extremely and unreasonably expensive or difficult
frustration of purpose
discharges performance when the purpose of k no longer exists. occurs when a party’s principal purpose is substantially frustrated by an unforeseeable superseding event outside their control and both parties knew of the purpose at the time of formation
common law breach
requires material breach. occurs when a party does not render substantial performance. material breach excuses non-breaching party from performance.
consider: extent of performance, adequacy of compensation for loss to non-breaching party, hardship, likelihood breaching party will cure, and whether breach was intentional
UCC perfect tender
seller must deliver conforming goods; smallest non-conformity is breach allowing buyer to reject all or portion of the goods within reasonable time.
exceptions:
1. right to cure: seller has right to cure when time for performance has not yet expired or
the seller will have further reasonable time to cure if seller had reasonable grounds that substitute goods would be accepted (same type of non-conforming goods had been accepted in past, etc.)
- installment k: can only be canceled when an installment is so defective that is substantially impairs the value of entire k. buyer can reject installment only if the non-conformity substantially impairs that installment and the time to cure has passed.
UCC acceptance of goods
occurs when
- after reasonable opportunity to inspect, buyer signifies to seller that goods are conforming or that it will retain goods despite non-conformity
- fails to reject after reasonable opportunity to inspect
- does any act inconsistent with seller ownership of goods
buyer is obligated to pay for goods once accepted unless revocation of acceptance is allowed
UCC revocation of acceptance is allowed when
after acceptance, buyer may later revoke acceptance only if
- non-conformity substantially impairs the value of goods and
- either (a) latent defect or (b) acceptance induced by seller assurances, or (c) buyer had a reasonable assumption defect would be cured
must occur within a reasonable time after discovery or should have discovered the nonconformity
- not effective until buyer notifies seller
- must occur before any substantial change in goods not caused by defects
anticipatory repudiation
occurs when party unequivocally communicates that they are unable or unwilling to perform under k
if occurs, non-breaching party may:
- treat k as repudiated and sue for damages before performance is due
- treat k as discharged
- wait until performance is due and sue
- urge the other party to perform
party can retract repudiation and restore k unless non-breaching party has
- cancelled
- materially changed position or
- indicated that they consider repudiation final
adequate assurances
if there are reasonable grounds for being insecure about performance, a party may make a written request for adequate assurances from the other party that it will perform
if the other party does not give assurances after asked, the requesting party may treat it as anticipatory repudiation
accord & satisfaction
accord - an executory k b/t parties promising to relieve a party of their k obligations in return for specific act
satisfaction - upon satisfaction of the accord (new act), the party is excused from further performances under OG k
if the party fails to satisfy the accord, the other party may sue either under OG k or the accord terms
express warranty
created when seller makes affirmation of fact, promise, description, or provides sample relating to goods and that becomes a basis of the bargain
opinion is not warranty – no intent or special words needed
seller is liable for breach of express warranty
implied warranty of merchantability
all goods sold by merchants (dealing in goods of the kind) must be fit for their ordinary purpose
disclaimer –> must do so expressly in conspicuous writing (as is, or with all faults)
implied warranty of fitness for particular purpsoe
applies when seller knows or has reason to know of the buyers particular purpose for which goods are required and buyer relies on seller skill or judgment to select or furnish suitable goods
may be disclaimed by: conspicuous writing, waiver by buyer (if defects can be discovered by reasonable inspected) or by course of dealing, performance, or usage of trade
warranty of title
warrants that title should be good/rightful and is free from security interests, liens, or encumbrances
may be expressly disclaimed by specific language or circumstances
limiting damages for breach of warranty in k
allowed as long as it is not unconscionable at the time k was formed.
exceptions:
1. limiting buyer remedy for personal injury for consumer goods is presumed unconscionable
2. the limited remedy fails of its essential purpose
intended third-party beneficiary
not a party to k, but has rights b/c the k parties performances were intended to benefit the identified third-party
incidental third party beneficiary
someone who just happens to benefit from k, but has no legal rights
third party enforcement of rights
a third party beneficiary may enforce rights under k only if the rights have been vested. vesting occurs when the third-party
- manifests assent to the promise in k
- detrimentally relies or
- sues to enforce
once vested, the k cannot be changed or modified without consent of third-party
assignment of rights in k
rights and benefits may be transferred to third-party if:
- assignor manifests intent to transfer and
- assignee assents to the assignment
consideration is not required for assignment. if consideration is given, the assignment is irrevocable. gratuitous assignments may be revoked.
limitations: assignment is valid UNLESS
1. materially alters what is expected (changes duty of obligor, increased burden or risk imposed on obligor, materially impairs obligor chance of obtaining return performance, or materially reduces value of return performance)
2. prohibited by law/pub policy or
3. precluded by k –> if prohibition, assignment is valid and the assignor is liable for damages; if invalidation, assignment is void
rights of assignee against assignor
assignee may sue obligor for non-performance
any defense against assignor may be used against assignee
assignee may sue assignor for wrongful revocation of an assignment or for breach of implied warranty
multiple assignments priority
if gratitutious –> last assignee prevails
if for consideration –> first assignee prevails unless the later assignee has no notice and is the first to obtain payments or indication of ownership
delegation
all k duties are delegable unless
- k prohibits
- delegation against pub policy
- personal service k that calls for exercise of personal skill or discretion or
- delegation materially alters the expectancy of obligee
the delegating or assigning party remains liable for non-performance unless a novation occurs
expectation damages
arise directly from breach, and are meant to put non-breaching party in the same position it would have been in but for the breach
to recover, damages must be caused by D, foreseeable, certain, and unavoidable (mitigation)
consequental damages
arise indirectly from breach (lost profits)
to recover, damages must be reasonably foreseeable at time of k formation, arise from P special circumstance that D knew of or had reason to know of and reasonably certain
may be limited or excluded by k unless unconscionable
punitive damages
meant to punish wrongdoing of a party
not available for breach of k
may be awarded for breach of k involving fraud or tort claims
specific performance
is an equitable remedy; only available if monetary damages are inadequate to compensate an injured party
awarded for sale of land
seller remedy for breach of k by buyer UCC
when buyer breaches, seller may do any of following:
- withhold delivery
- cancel k
- cover damages - different b/t the resale price and the k price (used when resold in good faith)
- market damages - difference b/t market price and k price
- lost volume seller - can recover lost profits if sale of goods at issue has unlimited inventory or
- replevy identified goods from an insolvent buyer in certain circumstances
seller is also entitled to incidental damages - the commercially reasonable costs as a result of the breach
right to replevy identified goods
a seller is allowed to replevy goods when buyer was insolvent when it received the goods and seller makes a demand within 10 days of buyer receiving goods
a buyer’s misrepresentation of solvency in writing within 3 months prior to delivery of goods removes the 10-day limitation above
UCC buyer remedy for seller breach
a buyer who never recieved the goods, rightfully rejected, or justifiably revoked acceptance may
- cancel the k
- recover any amount paid (refund) - even if buyer does not cancel
- recover incidental and consequently damages and/or
- recover either: cover damages (diff b/t k price and price of substitute goods if purchased in good faith) or market damages (diff b/t market price and k price if not in good faith or no cover at all)
if buyer keeps non-conforming goods, then buyer is entitled to loss in value damages = diff b/t value as promised and the value of the non-conforming goods
waste doctrine
when an award for cost of completion is wasteful, a court may award damages for diminution in value (diff in value of property) - may be awarded instead of expectation damages
waste doctrine applies if:
- contractor performs in good faith, but defects exists and
- remedying the defects would entail economic waste (cost of completion greatly exceeds value of completed work)
normally in construction k
restitution/unjust enrichment
awarded to prevent unjust enrichment when one party confers benefit
damages = value of benefit conferred
party cannot recover both restitution and expectation damages
rescission of k
treats OG k as cancelled
available when problem with k formation
a k will not be rescinded if
there is valid equitable defense or
plaintiff sued for damages under the k in a prior action
a party may sue for both damages and rescission at the same time
mitigation of damages
a party must take reasonable step to mitigate losses
- if party fails to mitigate, the court will reduce the total damages by amount that could have been avoided
affirmative steps to avoid loss are not required if they involve undue risk, burden, or humiliation
merchant
one who regularly deals in the goods of the kind sold or holds themselves out as having special knowledge/skill as to practices or goods involved
output or requirement k
output = party agrees to buy all output produced
requirement = party agrees to supply an unknown quantity of something to another or be the sole supplier of goods
nonperformance is excused where there’s an unreasonably disproportionate increase in quantity – changes in market should be anticipated
acceptance rule – UCC shipment of nonconforming goods
ucc: applied where acceptance is done via shipment - shipment of nonconforming goods is acceptance and breach unless the seller notifies the buyer that the shipment of nonconforming goods is an accommodation
- -> buyer can still reject the goods and if rejected there is no breach b/c there was no k formed since the warning was given – if no warning, then breach
merchant confirmatory memo
method of satisfying the SOF
requires both parties are merchants, party asserting SOF defense received signed writing memorizing the agreement and essential terms and failed to respond in 10 days
shipment k
seller only obligated to ship goods to buyer
this is presumed type of k
FOB + seller location
liability passes as soon as it is in the hands of carrier - only has the duty to use reasonable carrier, delivery to carrier promptly, etc.
destination k
seller obligated to ensure goods reach buyer
ROL passes when buyer takes delivery/possession
FOB + non-seller location
non-carrier delivery ROL
merchant seller - ROL passes to buy when he takes physical possession
nonmerchant seller - ROL passes upon tender of delivery
methods of excusing performance of a condition
hindrance in performing condition
waiver
actual breach of k when performance is due
anticipatory repudiation
impossibility, impracticability, or frustration
