Contracts Flashcards
What is the Applicable Law?
-The UCC
-Common Law
-Mixed Contracts
-types of contracts
The UCC: UCC Article 2 governs the sale of goods, with applicable rules also for merchants
Common law
the majority rules governing contracts other than the sale of goods
mixed contracts
are determined by the more important part of the deal, except divided contracts in which both UCC and common law rules might apply.
types of contracts: unilateral contracts
offer expressly required performance as the method for acceptance
divisible contracts
performance is divided into 2+ parts under the contract; the number of parts due from each party is the same; and performance between the parties is equivilent
option contract
agreement to leave open in exchange for consideration
Ads
generally a preliminary proposal unless words are to identifiable person, eg. first come first serve
quasi-contract
equitable remedy when the contract results are unfair. Prevents unjust enrichment.
Contract Formation Problems:
-offer: requirements; content
-requires:
(1) a manifestation of a present intent to contract demonstrated by a promise, undertaking or commitment;
(2) definite and certain terms; and
(3) communicated to an identified offeree
offer: content
-UCC Sale of Goods: description + quantity (price not needed)
-requirement contract: terms of exclusivity
-real estate: ID of land and price
-employment: duration
Contract Formation: Termination:
-revocation
an unambiguous statement by the offeror to the offeree OR unambiguous conduct indicating an unwillingness to contract that oferee is aware of.
revocation of option contract
no revocation
revocation of firm offer
UCC: offer can’t be revoked for up to 3 months if the offer to buy or sell goods, signed written promise to keep open and party is a merchant
detrimental reliance
no revoke if reasonable foreseeable detrimental reliance
start of performance
offer is irrevocable once performance has started
rejection
-counteroffers kill;
-additional terms under CL mirror image rule;
-lapse of time, eg. more than 1 month;
-conditional acceptance kill
Problems in Formation: Acceptance
-definition
A manifestation of assent to the terms of an offer in the manner prescribed or authorized by the offer
full performance
the contracting party has fulfilled every duty required by the contract. A completely performing party is entitled to a complete performance by the other party.
start performance
for bi-lateral contract, but not for unilateral contract
mailbox rule
acceptance is effective when mailed, all else is effective when received.
The seller of goods sends the wrong goods
unless with an explanation (then it’s a counteroffer)
offeree promise to perform
Acceptance by a promise requires that the offeree complete every act essential to the making of the promise
Additional Terms
-CL Mirror Image Rule;
-UCC: If one party is a merchant: then additional term is a proposal which is subject to a separate rejection;
—If both parties are merchants: additional term is party of the contract unless it materially alters, the offeror objects within a reasonable time, or the offer limits acceptance to the terms
Formation Problems: Consideration
-definition
Requires a bargained-for exchange of legal detriment between parties
past consideration
-not consideration, except expressly requested performance / forbearance and expectation of payment
-new consideration required for pre-existing contract or statutory duty: except in CL, unforeseen difficulty, 3rd party promise or promise to pay debt barred by SoL
substitutes for consideration
-written promise when prior obligation had applicable legal defense
-promissory estoppel
Defenses to Formation of Contract:
-incapacity
under 18 has a right to disaffirm contract unless the minor retains benefit after gaining capacity (eg. keeps the car after turning 18)
illegality
-if the subject matter is illegal: then the contract is void
-if the subject matter is legal but the purpose is illegal: then the contract is enforceable only by person who didn’t know of the illegal purpose
public policy
covenant not to compete, exculpatory clause
misrepresentation / nondisclosure
innocent party may rescind if induced to enter into the contract by fraudulent misrepresentation OR nonfraudulent material misrepresentation
duress
-improper threat and no reasonable alternative
unconscionability
unfair surprise and oppressive terms at the time of contracting
ambiguity / misunderstanding
-each party uses a material term open to 2 reasonable interpretations;
-each party attaches a different meaning to a term;
-neither party knows or has reason to know the term is subject to 2 interpretations causing ambiguity
mistake
-no contract is MUTUAL mistake on basic assumption of fact that materially affects the agreen upon exchange and not a risk that either party bears
-unilateral mistake: not voidable unless other party knew or should have known
Statute of Frauds:
-applies to MY LEGS
-applies to Marriage; Year; Land; Executory guarantee; sale of Goods less than $500; Suretyships
how to satisfy the Statute of Frauds
-satisfy by performance, writing, or judicial admission
-in real estate: part performance requires 2 out of the following 3: payment; possession; or improvements
writing requirements
-non UCC: parties; subject matter; terms & conditions; consideration; signature
-UCC: quantity terms and signature, unless confirmatory memo of oral contract AND no objection within 10 days
Contract Formation Problems: Terms
-parole evidence rule
-integration issues
-merger clause is highly persuasive but not determinative
-no PE to reform or contradict WRITTEN terms, unless there’s a mistake in integration
-PE ok to argue defense to enforcement, explain ambiguous terms, to provide additional terms if only partial integration, or additional terms would ordinarily by in a separate agreement
conduct
-course of performance: same people, same contract;
-course of dealing: same people, similar contract
-custom and usage: different people, similar contract
UCC default: delivery obligation and FOB
-delivery obligation: either Shipment contracts or Destination contracts;
-FOB: “free on board”
-If city is where the seller is located: then shipment contract
-if the buyer’s city: then destination contract
risk of loss
-determined by agreement, breach (even slight) shifts the risk of loss
-delivery by a common carrier: shipment contract: then risk of loss to buyer when seller delivers to carrier
-destination contract: risk of loss to the buyer when the seller delivers to the buyer
risk of loss: no agreement
-merchant seller: risk of loss to buyer on receipt of goods
-non-merchant seller: risk of loss to buyer upon tender
-if risk of loss is on buyer: then the buyer pays the fill contract price
-if the risk of loss is on seller: then possible liability on seller for non-performance
express warranties
-UCC: seller liable for breach (statements of fact, promises, description of goods, etc.)
implied warranty of merchantability
-if dealing in goods of that kind and FITNESS for a particular purpose if seller has reason to know of purpose and reliance on seller
*ALL contracts have an implied warranty of good faith and fair dealing
Performance Problems:
-breach of contract
-breach of contract occurs any time a party refuses to perform under the terms of the agreement
-such breaches are categorized as either material or minor, with material breaches excusing the other party from performance
Sale of goods:
-perfect tender
if sale of goods, Seller’s performance must be perfect or Buyer can reject
rejection of goods: options; cure
-retain and sue for damages or reject all of commercial unit and sue for damages
-cure: Seller has a second chance at perfect tender if:
—Seller has reasonable ground to believe the delivery would be accepted OR
—-the time to perform has not yet expired
installment contract
Buyer can reject installment only if there’s a substantial impairment that can’t be cured
acceptance of goods
-if accepted goods, Buyer can’t later reject
-payment doesn’t equal acceptance without an opportunity to inspect
-implied acceptance if Buyer keeps for a reasonable amount of time
revocation
*differences in common law too
-if Buyer hasn’t accepted the goods, Buyer may cancel the contract by revoking acceptance IF:
—nonconformity substantially impairs the value of the goods;
—-excusable ignorance of grounds for revocation or reasonable reliance on Seller’s assurance; and
—revocation within a reasonable time after discovering the nonconformity
***Common Law: substantial performance
Excuse for non-performance? Performance is excused if:
-improper performance
-excused if improper performance by the other guy - material breach
-non-occurrence of a condition
non-occurrence of a condition- mutually agreed promise requiring strict compliance
-anticipatory repudiation: options
-effect:
-excuse the relying party from performance and immediately sue for damages (not available if fully performed)
-suspend performance and wait for performance date to sue
-treat repudiation as an offer to rescind and treat the contract as discharged
-retraction of anticipatory repudiation is ok if the other party hasn’t MATERIALLY changed position
insecurity
if reasonable grounds, relying party can demand adequate assurance AND may suspend performance
Later Contracts:
-rescission
only if performance has not been completed
accord and satisfaction
a mutual agreement of existing obligation to accept different performance OR by acceptance of a check marked “paid in full”
modification: definition; Common Law; UCC
-mutual agreement to accept different agreement to satisfy existing contract
-Common Law: new consideration is needed to modify
-UCC: not needed to modify, but must show good faith for needing modification
novation
mutual agreement to substitute an existing party with another, excusing the performance of the substituted party
Later Unforeseen Event:
-impossibility
can’t be done (damage, destruction, death, subsequent law or regulation)
impracticability
can’t be done without extreme AND unreasonable difficulty OR expense. (increase in seller cost is rarely an excuse)
frustration of purpose
unforeseeable supervening event that destroys the PURPOSE of the contract
What are the Remedies?: Non-Monetary Remedies (In Rem)
-specific performance
-typically limited to real estate, sale of unique goods, but never for services
-requirements: valid contract; conditions are satisfied; inadequacy of legal remedies; mutuality; feasibility of enforcement
rescission
-cancels the contract
-requirements: grounds for recession (eg. mutual mistake or unilateral mistake if non-mistaken party would suffer undue hardship or knew of the mistake)
*no negligence
reformation
-changes the written agreement to conform to the parties’ original understanding
-requirements: valid contract; grounds for reformation; no negligence; SoF; PER
reclamation
-right of an unpaid seller to get the goods back
-only if Buyer was insolvent as the time of receipt AND Seller makes demand for return within 10 days of Buyer’s receipt OR reasonable time if Buyer gives express representation; AND Buyer has the goods at the time of the demand
rights of good faith purchaser in entrustment
-the owner entrusts the goods to a person who sells that kind of good AND the person wrongfully sells to 3rd party
-GFP cuts off the right of the original owner
What are the Remedies: Monetary Damages
-expectation interest
puts the Plaintiff in the position as if the contract wasn’t breached
reliance interest
puts the Plaintiff in the same dollar position as if contract wasn’t breached
restitution interest
prevent Defendant’s unjust enrichment
Damages for Sale of Goods
-Seller breaches / Buyer keeps the goods: difference between the value of the goods delivered and the fair market value had they been perfect.
-Seller breaches / Seller keeps: the difference between the contract price and either market price or cost of replacement
-Buyer Breach / Buyer keeps: Seller recovers the contract price
-Buyer breaches / Seller keeps: difference between market and contract price
Additional Damages:
-incidental
the cost for finding replacement
foreseeable consequential damages
damages from Plaintiff’s special circumstances, only if Defendant had REASON to know of special circumstances
Limitations on Damages:
-avoidable damages
-certainty
-avoidable damages: Plaintiff must mitigate
-certainty: the loss must be proved with reasonable certainty
Third Party Rights and Obligations:
-3rd party beneficiaries
-Incidental TPB don’t have contract rights, only INTENDED TPB’s do
-no cancellation or modification after TPB’s rights have vested by either relying, assenting or suing for enforcement
assignment of rights
-when one party transfers rights under a contract to an assignee
-language is important: if the contract states “rights under this contract are NOT assignable” then the assignment is still VALID
-Assignor is liable for breach BUT assignee who doesn’t know of prohibition can enforce
-If contract states “all assignments under this contract are VOID” then the assignments are INVALIDATED
gratuitous assignment
can be revoked; last gratuitous assignment wins
assignment for consideration
-no recovery from obligor
-assignor implies warranty that right exists, right is not subject to any defenses, assignor won’t do anything to impair value of assignment
*first assignment for consideration wins
delegation
-allowed unless the contract prohibits delegation, the contract calls for special skills, or the contract has very special reputation
-if a 3rd party doesn’t perform, the delegating party ALWAYS remains liable
-delegatee liable ONLY if she receives consideration from delegating party, in which delegatee is liable to delegating party AND obligee
