Contracts Flashcards
Key principle #1: State the following key introduction found in the first bullet point below if Article 2 is at
issue.
Article 2 of the Uniform Commercial Code (UCC) is tested about half of the time that there is a Contracts and Sales question on the MEE.
Article 2 of the Uniform Commercial Code (UCC) applies to transactions in goods.
Goods are “things moveable” at the time of identification to the contract. A contract under Article 2 may be
made in “any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.”
Key principle #2: Contract formation is heavily tested.
Know that offer, acceptance, and consideration are needed to form a contract, and be very familiar with each of these three parts of a contract.
Offer: A person makes an offer when the person communicates to another a statement of “willingness to enter into a bargain” so that the other understands that “his assent to the bargain is
invited and will conclude it.”
The terms of an offer need to be reasonably certain (e.g., as to parties,
subject matter, price, etc.).
Counter offer :
Promise to hold open :
Compare—counteroffer: under common law, a statement is a counteroffer, rather than an
acceptance, when the terms of the initial offer are changed—e.g., when a condition is added to the purported acceptance (mirror-image rule).
Promise to hold offer open: Generally, an offer may be revoked before acceptance. A promise to hold an offer open requires consideration in order to be binding (unless the UCC firm offer exception applies).
Acceptance :
Rejection :
effective upen receipt; if both (rejection and acceptance is sent) which ever is received first wins.
An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer.
It is effective upon dispatch (the mailbox rule).
A rejection is a manifestation of intent to not accept the offer.
It terminates the offeree’s power to accept an offer. It is effective when received by the
offeror.
Note: if a rejection is sent and then an acceptance is sent, whichever the recipient receives first is effective.
Consideration:
Consideration is a legal detriment or “bargained-for exchange.”
A promise to make a gift does not constitute consideration.
Past consideration or pre-existing duty rule :
Under common law, promising to perform a legal duty already owed
to a promisor is not valid consideration.
Exceptions include if the duty is “changed”(even slightly), “unforeseen circumstances, etc.”
Material benefit rule :
This is State specific.
Material benefit: some states recognize an exception to past consideration
limitations in which a promise is made after receipt of a significant benefit.
(usually the promise arises after a benefit received in an emergency situation).
UCC consideration :
Promisor estoppel :
UCC: under the UCC, only “good faith” is needed to modify a contract.
Promissory estoppel is a substitute for consideration. If there is
(1) a “promise”,
(2) “ detrimental reliance” -reasonable
that is foreseeable and justifiable, and (3) “enforcement is necessary to avoid injustice,” the promise will be enforced.
Performance :
Common law : “Substantial performance”
UCC : “perfect tender rule for one shot deals”
Devisable contracts : is an exception to the perfect tender rule - a party may collect for the part of the contract performed.
Under common law, a party must
“substantially perform” its contractual obligations in order to demand performance (usually payment) from the other party.
Courts will look at several factors to determine whether performance was substantial.
Note that this is different from UCC Article 2, which requires perfect tender for one-shot deals.
§ Exception—divisible contracts: A contract is divisible so long as (1) it is apportionable and
(2) the parties would have contracted for each part separately. A party that performs one or more parts of the contract may collect payment for those parts even if he does not
substantially complete performance of his duties.
Key principle #4: note the difference between a buyer’s ability to reject goods versus his revocation of
acceptance of goods.
Rejection of goods: A buyer can generally reject goods for any reason under the perfect-tender
rule. (There are exceptions to this—e.g., installment contracts.)
- Revocation of acceptance of goods: If a buyer accepts the goods, he can no longer reject them.
However, in certain circumstances a buyer can revoke his acceptance of the goods. The buyer can
do this when: (1) the nonconformity substantially impairs the value to him; (2) he accepted the goods
because he had a reasonable belief that the nonconformity would be cured (and it was not), or he didnot discover the nonconformity because the nonconformity was difficult to discover, or because of
the seller’s assurances; (3) he revokes within a reasonable time after he discovers or should have
discovered the nonconformity; and (4) he revokes before any substantial change in condition of the
goods which is not caused by their own defect. A buyer who revokes acceptance of goods may
recover the purchase price that has been paid.
Key principle #5: know that the difference between anticipatory repudiation and prospective inability to
perform is truly one of degree.
Anticipatory repudiation:
Anticipatory repudiation: This occurs when there is an unequivocal manifestation by one party to
the other that the party cannot or will not perform its obligations under the contract (a mere
expression of doubt is not enough) and this statement is made before the repudiating party’s performance is due. The other party may wait for a reasonable time for performance or resort to any remedy for breach of contract.
Insecurity:
Demand for assurance :
30 days to respond or treated as a repudiation;
Prospective inability to perform: This occurs when a party has reasonable grounds for insecurity
that the other party is unable or unwilling to perform. This is merely doubt, it does not rise to the
level of an anticipatory repudiation.
Under the UCC, the party may then, in writing, demand adequate assurance of performance, and until she receives such assurance, may suspend her
performance. If such assurance is not given within a reasonable time, not exceeding 30 days, the
other party may treat it as a repudiation.
Retracting a repudiation:
The party who has repudiated can retract his repudiation unless the other
party cancelled the contract, materially changed his position in reliance on the repudiation, or indicated that she considers the repudiation to be final.
Key principle #6: be familiar with the Statute of Frauds.
Common law: State: “A contract within the Statute of Frauds satisfies that statute and is
enforceable if it is evidenced by a writing signed by ‘the party to be charged,’ which (1) reasonably
identifies the subject matter of the contract, (2) is sufficient to indicate that a contract has been
made, and (3) states with reasonable certainty the essential terms of the contract.” Contracts that
are within the statute include (mnemonic=MYLEGS): contracts made in consideration of
marriage, contracts that cannot be performed in a year, contracts for the sale of an interest in land,
promises by an executor to pay a debt of an estate out of his personal funds, sale of goods over
$500, and suretyship contracts.
Sale of goods contract and SOF:
“Quantity is required”
Confirmatory memo; when an oral agreement was done and someone send a memo.
UCC: A contract for the sale of goods for a price of $500 or more is not enforceable unless there is
a writing signed by the party against whom enforcement is sought that is sufficient to indicate that a
contract for the sale of goods has been made between the parties.
The writing need not contain all
terms of the contract, but it is not enforceable beyond the quantity of the goods shown.
Exception to be aware of are the merchant confirmatory memo exception, the part performance exception, the specially manufactured goods exception, and the judicial admissions exception.
