Contracts Flashcards
Until when are offers revocable?
Offers are revocable by the offerer until there has been an acceptance.
Exception: offers that are irrevocable
① Option K
② firm offer
③unilateral k
Option k
Additional consideration is given for a promise to keep an offer open for a period of time. Once performance begins, the option K becomes irrevocable
How long is an option k valid?
For the time stated. If no time is stated, for a reasonable amount of time.
Firm offer
Promise from a merchant, in writing, to keep an offer open for a period of time. No additional consideration needed, just need good faith.
How long is a firm offer valid?
For the time stated. If no time is stated, for a maximum of 3 months.
Revocation
Offeror retracts their offer
What is direct revocation? When is it effective?
Direct contact to the other party; effective upon notification
What is indirect revocation? When is it effective?
When the offeree receives 1) correct information, 2) from a reliable source, 3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
How can an offer be accepted?
By any reasonable means that express your intent UNLESS the offeror specifies the manner of acceptance. If it is specified, then that is the ONLY way it can be accepted.
Mailbox Rule
Acceptance is effective when sent (the moment you drop the letter in the mail)
Exception to the Mailbox Rule
If a rejection letter is sent first and is followed by an acceptance, whichever letter arrives first prevails
ALSO mailbox rule does not apply to option K
What is consideration?
Bargain for exchange – each party is giving something up
Gift consideration (promise vs. giving)
Promise to give a gift = unenforceable consideration
Giving a gift = enforceable consideration
Past/Morale Consideration
Doing a good deed on your own = unenforceable consideration
Doing a good deed bc someone offered you something = enforceable consideration
Two types of 3rd party beneficiaries
Intended- you intended to help them;
Incidental- original parties did not intend to benefit
Intended 3rd party beneficiary rights
MAY have rights ONLY IF they have vested. Rights vest if (1) the 3rd party was told about the benefits; or (2) the 3rd party learned about the benefits and began to rely
Incidental 3rd party beneficiary rights
NEVER have any rights, no matter what
Assignment and Delegation Rule
A party to a contract may freely assign their rights and delegate their duties to whomever and whenever they choose
A party assigned or delegated their K role and the new party that was assigned/delegated breached their duty. Who can be sued?
Both the original party + the new party UNLESS there was a novation
Novation
An agreement between the original K parties to be released from all obligations (verbal or written)
Exceptions – when can a party NOT delegate or assign?
- Unique or Personal Service
- K states parties agree not to assign
- K states parties agree not to delegate
- K states “VOID” if assignment or delegation occurs
K states parties agree not to assign but party assigns anyways. Is this a valid assignment? What, if anything, is party liable for?
Assignment is still valid but the original party will be liable for damages because the K was breached
K states parties agree not to delegate but party delegates anyways. Is this a valid delegation?
NOT valid. If the K states you cannot delegate, you cannot do it!!! (different from assignment where it is valid but you are liable for breach of K)
Statute of Frauds
Contracts that must be in writing:
M- Marriage
Y- Cannot be performed in less than one Year
L- Land
E- Executor
G- Guarantor/Surety
S- Sale of goods over $500
Parol Evidence
Concerns oral communications that occur prior to or at the same time with a K
Parol Evidence with PARTIAL Integrated K
Parol evidence is allowed UNLESS the evidence contradicts a material term
Parol Evidence with FINAL Integrated K
NO parol evidence allowed UNLESS to clear up an ambiguity
EXCEPTIONS to Parol Evidence – When is parol evidence allowed NO MATTER WHAT?
- To show a condition precedent to the K;
- To prevent fraud or duress;
- In a sale of goods, to show trade usage (course of dealing)
- To clear up an ambiguity!
Three kinds of conditions in a K
- Precedent: occurs before the day of performance
- Concurrent: occurs on the day of performance
- Subsequent: occurs after the day of performance
Waiver of condition
When the party that would benefit from the condition indicates by word or conduct that they will not insist on the condition being met
Legal Remedies
You want money. Default is expectation damages which put the non-breaching party in a position had the K been performed
Liquidated Damages
Clause in the K that calculates the amount of damages when you enter the K, in the event of a breach
Are liquidated damages enforceable?
Yes. So long as they are reasonable and do not act like a penalty/punishment. (10% or less is reasonable; the higher, the more like punishment)
Equitable remedies
When the remedy at law is inadequate (aka money won’t help you)
3 common types of equitable remedies
- specific performance = someone has to perform
- injunction = someone has to stop
- recission = put party in the position prior to entering the K
Modification of a K happens when?
after the K has been entered into
Common law modification
Applies to services. Need additional consideration in order to modify.
UCC modification
Applies to sale of goods. Can modify so long as there is good faith between the parties; do not need additional consideration.
Buyer receives non-conforming goods on day of delivery:
Buyer MAY accept, reject, or accept in part and reject in part
Buyer receives non-conforming goods PRIOR to the day of delivery and seller proves they can fix the goods on time:
Buyer MUST give the seller opportunity to cure
Buyer receives non-conforming goods on the day of delivery BUT seller had reasonable belief that buyer would accept:
Buyer MUST give seller opportunity to cure so long as they can do it in a reasonable amount of time (VERY fact specific)
Installment K and one of the installments are non-conforming:
Seller will pay damages for that non-conforming installment but Buyer cannot hold seller in breach UNLESS the one non-conforming installment “substantially impairs the value of the K”
Anticipatory repudiation
When, prior to the date of performance, one party unequivocally refuses to perform.
Anticipatory repudiation is a breach!
What happens if there is anticipatory repudiation?
The non-breaching party has the right to:
1. Sue the breaching party immediately;
2. Wait and see if the breaching party changes mind and performs; or
3. Look for a new seller
When can assurances be demanded?
If a party has reasonable grounds for insecurity, they can demand assurances and the other party must respond in a reasonable amount of time
Promissory Estoppel
One party promises the other party something and the promise induces detrimental reliance on the other party
CONSIDERATION NOT NECESSARY IF YOU HAVE DETRIMENTAL RELIANCE
Impossibility defense
When:
1. Objectively, nobody could perform; or
2. Performance is illegal
Impracticability defense
Occurs when you physically can perform, but due to unforeseen circumstances, performance would be too difficult/unfair
Unilateral mistake
Only one person was mistaken. NEVER a defense to formation UNLESS the other party knew about the mistake.
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Advertisements
Are not generally offers, they are invitations for offers.
real estate contracts elements:
- be in writing
- signed by the party to be charged
- identify the parties
- identify the land
- include the price
sale of goods contracts must identify
the quantity of goods to be sold
Employment contracts
If duration isn’t specified, its construed as being at will. For other services, the nature of the work to be performed must be included in the offer.
If there is a missing term, is there a K?
Yes so long as it appears that the parties intended to make a K and there is a reasonably certain basis for giving a remedy
if the price is missing, is there a K?
Yes.. missing price does not prevent formation of a K.
For sale of goods, price will be a reasonable price at time of delivery
if agreement doesn’t specify time, is there a K?
yes.. the K will be implied as “to be performed within a reasonable time”
Lapse of time
an offer may be terminated by the offeree’s failure to accept within the time specified or, if no time, within a reasonable period
Counteroffer
this is a rejection of the original offer!!
Termination by offeree occurs by:
1) lapse of time;
2) Rejection (express rejection or indirect, like a counteroffer)
bilateral contract
mutual exchange– a promise for a promise
how is a bilateral K accepted?
by a promise to perform or by the beginning of performance
how is a unilateral K accepted?
once performance is COMPLETE
Common law acceptance
acceptance must be a mirror image of the offer
what happens when both parties are merchants and the acceptance has additional or different terms from the offer?
SUBJECT TO THE BATTLE OF FORMS:
The additional terms become part of the K unless:
- materially alter the K
- offer expressly conditions acceptance as is;
- the offeror rejects the terms
The different terms become part of the K depending on the jurisdiction:
- either the additional terms test will be applied OR
- knockout rule applies and conflicting terms are left out
Merchant’s confirmatory memo
2 merchants agree orally to modify and one sends a written confirmation to the other. UCC allows one merchant to use its own confirmation to satisfy SOF against the other merchant
Contracts with Minors
Legally binding on the adult, void at the option of the minor
unconscionability
Unfairness in the bargaining process
“Unfair price” alone is not enough to find unconscionability
Can a written K be orally modified?
Yes but the modification must be in writing if the K, as modified, falls within the SOF
EX: sale of goods in writing for $200 but then you orally modify it to be $500, you now need a writing to satisfy that modification - if sale of goods in writing for $200 and you orally modify to $100, don’t need to have modification in writing
Exceptions to SOF
PART PERFORMANCE will defeat the requirement of writing
for LAND (need 2/3):
1) payment (whole or in part)
2) possession
3) substantial improvements
for SALE OF GOODS:
1) specially manufactured goods (unique to buyer) OR
2) goods have been paid and accepted/received
If you admit under oath there was a K…
SOF is irrelevant. Don’t need a writing. You just proved there is no fraud
Express warranties
an affirmation of fact or promise made by seller to the buyer
- sample, model, BUT NOT OPINIONS
Implied warranty of Merchantability
Implied in every K for sale by a merchant who deals in the kind of goods sold, that the goods are fit for the ordinary purpose for which such goods are used (aka they are merchantable)
Implied warranty of fitness for a particular purpose
A warranty implied whenever any seller, MERCHANT OR NOT, knows buyer wants the good for a particular purpose (or should know), and the buyer is relying on the seller’s skill or judgment
Can only disclaim ____ warranties
IMPLIED!!! CANNOT DISCLAIM EXPRESS warranties!!!
you can limit remedies in a K as long as the limitation is not
unconscionable
Noncarrier case
A sale in which the parties did not intent that the goods would be moved by a common carrier
who bears the ROL in a noncarrier case?
If the seller is a merchant: ROL passes to buyer only when they take possession
If the seller is NOT a merchant: ROL passes to buyer upon tender of delivery
Carrier case
A sale in which it appears the parties intended the goods be moved by a carrier
Types of carrier cases
Shipment K: requires the seller to ship the goods by carrier (FOB, Sellers City Name)
Destination K: requires the seller deliver the goods at a particular destination (FOB, another city name)
Who bears the ROL in a shipment K case?
ROL passes to the buyer once the seller delivers the goods to the carrier
Who bears to ROL in a destination K case?
ROL passes to the buyer once the goods are tendered to the buyer at the destination
Performance under the common law
Party must substantially perform
Performance under the UCC
Performance must be perfect
Difference between a promise and a condition?
Failure of a promise is a breach whereas failure of a condition relieves a party of the obligation to perform
Accord and satisfaction
An accord (agreement) in which one party agrees to accept, in lieu of the performance they are supposed to receive, some other different performance. Satisfaction is the performance of the accord agreement.
Frustration of purpose
Where there is a specific purpose of the K, known to both parties, and a subsequent event (storm, death, etc.) that was not reasonably foreseeable, makes the purpose of the K pointless
Material breach
excuses the non-breaching party from having to perform
non-breaching party did not receive the substantial benefit of the bargain
Minor breach
Does not excuse performance, the non-breaching party must still perform but has a right to damages and to deduct
Nonbreaching party still received a substantial benefit of the bargain
specific performance
always available for land sale Ks and in sale of goods if goods are unique
Someone has to perform
Not available for breach of K of services
Seller’s right to recover goods from buyer on buyer’s insolvency
If a seller learns buyer has received goods on credit but buyer cannot pay for them (bc they are insolvent), seller may reclaim the goods on demand within 10 days after the goods were received)
Expectation damages
Putting the nonbreaching party in a position had the K been fulfilled.
Can include consequential and incidental damages
Consequential damages
FORESEEABLE at the time of formation
Incidental damages
Foreseeability doesn’t matter but incidental damages are ALWAYS RECOVERABLE
Sellers damages if buyer breaches and seller has to resell the goods
difference between K price and resale price (standard remedy under UCC)
Seller damages if seeking market damages
difference between k price and market price at the time of the breach
Seller damages if goods are custom to buyer and buyer breaches
Seller gets the K price
Seller damages if they are a merchant with unlimited inventory and buyer breached
they get the lost profit they would have gotten from buyer
Buyer damages if seller breaches and buyer does not cover
difference between market price at the time of breach and K price
Nonbreaching party has a duty to ___ damages if they are ___
mitigate, substantially similar or comparable
If you entrust your goods to a merchant who deals with goods of that kind
last BFP wins
BFP trumps the original owner
Gratuitous assignments
last person to be assigned by gift wins
Assignments with consideration
The first to be assigned with consideration wins
Assignments require
PRESENT INTENT TO TRANSFER!
When will a promise to pay another’s debt (guarantor) not fall under the SOF requirement?
If the promise to pay another’s debt does not benefit the promisor!!
Ex: Daughter gets a loan for $1k to buy a car. Dad says I will pay it off if she doesn’t. Dad’s promise does not need to be in writing because it does not benefit him, it benefits his daughter.
unilateral k is accepted once
performance is completed
does an offeree need to provide notice of acceptance of a unilateral k?
offeree does not need to notify that perform has BEGUN but needs to give notice within a reasonable time once performance has been completed
substantial performance
the standard under common law to evaluate the perofrmance of K.
just need substantial performance – it does not need to be perfect
substantial performance is not met if
there is a material breach by either of the parties
substantial performance is not applicable where performance is
subject to an express condition!! it only applies to constructive conditions
A “constructive” condition is a condition that was not agreed upon by the parties, but that is supplied by the court to ensure fairness.
is a supervening event destroys the main purpose of the k, what happens?
both parties are discharged of their duties but any benefit one party gave to the other prior to the supervening event may be recovered in restitution
