CONTRACTS Flashcards
UCC Article 2 vs. Common Law
Article 2 of UCC governs all contracts for sale of goods. Common law governs all other contracts (i.e., service or construction contracts. For mixed contracts, predominant purpose of contract determines which law governs.
Article 2 of Uniform Commercial Code (UCC)
Article 2 of UCC applies to transactions in goods. Goods are all things moveable at time of identification to contract. Contract under Article 2 may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes existence of such contract.
Requirements to Form Valid K
An enforceable contract is formed when there is:
(1) mutual assent (valid offer and valid acceptance);
(2) consideration; AND
(3) no defenses to formation that would otherwise invalidate K.
Offer
To form valid offer, offeror must:
(1) manifest objective willingness to enter into agreement; AND
(2) create power of acceptance in offeree.
Acceptance
Acceptance is a manifestation of willingness to enter in an agreement by offeree that is communicated to other party. It is effective upon dispatch (mailbox rule).
Rejection
Rejection is manifestation of intent to not accept offer. It terminates offerree’s power to accept offer. It’s effective when received by offeror. If rejection is sent and then acceptance is sent, whichever recipient receives first is effective.
Consideration
Consideration is legal detriment or bargained-for exchange. Promise to make gift does not constitute consideration.
Preexisting-Duty Rule
Under common law, promising to perform legal duty already owed to promiser is not valid consideration.
Preexisting-Duty Rule - Material Benefit
Some states recognize exception to past consideration limitations in which promise is made after receipt of significant benefit (usually promise arises after benefit received in emergency situation).
UCC Consideration / Modifying K
Under UCC, only good faith is needed to modify a contract.
Promissory Estoppel
Promissory estoppel is substitute for consideration. If there is: (1) promise; (2) reliance that is foreseeable and justifiable; and (3) enforcement is necessary to avoid injustice, promise will be enforced. Damages are usually limited to reliance damages.
Substantial Performance (Common Law)
Under common law, substantial performance required, which means that performance will be satisfied so long as there is NOT a material breach of K. If there is a material breach, non-breaching party’s performance is excused. If breach not material, non-breaching party’s performance not excused.
Performance Obligations Exception - Divisible Contracts
Contract is divisible so long as (1) it is apportionable and (2) parties would have contracted for each part separately. Party that performs one or more parts of contract may collect payment for those parts even if he does not substantially complete performance of his duties.
Revocation of Acceptance of Goods
If buyer fails to reject nonconforming goods after having reasonable opportunity to inspect goods, buyer is deemed to have accepted goods. Buyer may revoke acceptance if:
(1) nonconformity substantially impairs value of goods;
(2) revocation occurs within reasonable time after buyer discovers/should have discovered ground for nonconformity but before any substantial change in condition of goods; AND
(3) buyer accepted goods on reasonable assumption nonconformity would be cured and it has not been or acceptance was reasonably induced by either difficulty of discovery or by seller’s assurances.
Anticipatory Repudiation (CL)
Under common law, anticipatory repudiation occurs when promisor clearly and unequivocally repudiates promise before time for performance due (by words or conduct).
Anticipatory Repudiation (UCC)
Under UCC, anticipatory repudiation occurs when:
(1) buyer or seller makes unequivocal refusal to perform; OR
(2) reasonable grounds for insecurity arise regarding either party’s ability or willingness to perform, and repudiating party fails to provide adequate assurances within reasonable time (not to exceed 30d) upon non-repudiating party’s demand for such assurances.
When anticipatory repudiation occurs, non-repudiating party may:
When anticipatory repudiation occurs, non-repudiating party may:
(1) treat repudiation as breach and sue immediately for damages; OR
(2) ignore repudiation, urge performance, and see what happens.
Retracting a Repudiation
Repudiation may be retracted until promisee:
(1) acts in reliance on repudiation;
(2) signifies acceptance of repudiation; OR
(3) commences action for breach of contract.
Statute of Frauds
Contract satisfies statute of frauds and is enforceable if it is evidenced by a writing signed by party to be charged which:
(1) reasonably identifies subject matter of K;
(2) is sufficient to indicate that K has been made; &
(3) states with reasonable certainty essential terms of K.
Contracts within statute include (MYLEGS):
(1) marriage,
(2) that cannot be performed in a year,
(3) contracts for sale of interest in land,
(4) promises by an executor to pay debt of an estate out of personal funds,
(5) sale of goods of $500 or more; and
(6) suretyship contracts.
Expectation Damages (standard)
Goal of expectation damages is to put non-breaching party in same economic position it would be in if K had been performed as promised. Measured by comparing value of performance without breach to value of performance with breach. Expectation damages MUST be proved with reasonable certainty - unforeseeable consequential damages NOT recoverable unless breaching party had some reason to know about possibility of unforeseeable damages.
Reliance Damages
Goal of reliance damages is to put non-breaching party in same economic position it would be in if contract had never been created. Reliance damages restore losses that P incurred that would’ve never taken place but for breached K.
Restitution Damages
Goal of restitution is to prevent unjust enrichment. Restitution gives P amount equal to economic benefit that P conferred on D.
Mitigation
P has duty to take reasonable steps to mitigate losses. If P fails to do som, court will reduce total damages by amount that could’ve been avoided had P taken reasonable steps to mitigate losses.
Perfect Tender (Performance under UCC)
Under UCC, perfect tender is required, which means seller must deliver conforming goods in accordance with terms of K. Smallest nonconformity is breach that allows buyer to reject all or portion of goods.
Three exceptions:
(1) parties can contractually change default rules to include substantial performance;
(2) installment contracts (agreement for delivery in separate lots) do NOT have to satisfy perfect tender - buyer can reject specific installment delivery when substantial impairment in installment that cannot be cured; and
(3) if seller fails to tender perfect goods, buyer MUSt give seller chance to cure nonconformity if time for performance under K has NOT yet expired OR seller has reasonable grounds to believe buyer would accept replacement for nonconformity.
Good Faith & Fair Dealing
All K contain implied obligation which requires parties to K to act in good faith and deal fairly with each other.
Perfect Tender (Performance under UCC)
Under UCC, perfect tender is required, which means seller must deliver conforming goods in accordance with terms of K. Smallest nonconformity is breach that allows buyer to reject all or portion of goods.
Three exceptions:
(1) parties can contractually change default rules to include substantial performance;
(2) installment contracts (agreement for delivery in separate lots) do NOT have to satisfy perfect tender - buyer can reject specific installment delivery when substantial impairment in installment that cannot be cured; and
(3) if seller fails to tender perfect goods, buyer MUSt give seller chance to cure nonconformity if time for performance under K has NOT yet expired OR seller has reasonable grounds to believe buyer would accept replacement for nonconformity.
Good Faith & Fair Dealing
All K contain implied obligation which requires parties to K to act in good faith and deal fairly with each other.
Perfect Tender (Performance under UCC)
Under UCC, perfect tender is required, which means seller must deliver conforming goods in accordance with terms of K. Smallest nonconformity is breach that allows buyer to reject all or portion of goods.
Three exceptions:
(1) parties can contractually change default rules to include substantial performance;
(2) installment contracts (agreement for delivery in separate lots) do NOT have to satisfy perfect tender - buyer can reject specific installment delivery when substantial impairment in installment that cannot be cured; and
(3) if seller fails to tender perfect goods, buyer MUSt give seller chance to cure nonconformity if time for performance under K has NOT yet expired OR seller has reasonable grounds to believe buyer would accept replacement for nonconformity.
Good Faith & Fair Dealing
All K contain implied obligation which requires parties to K to act in good faith and deal fairly with each other.
Terms Required in Offer
Certain terms MUST be included in offer for offer to be valid. Under common law, all essential terms must be specified in offer - (1) parties; (2) subject; (3) quantity; and (4) price. Under the UCC, the law plugs the gaps for missing terms - only required terms are (1) parties, (2) subject; and (3) quantity.
Terminating Offer
If valid offer is terminated at any time before acceptance, offer is invalidated and cannot be accepted or revived unless new offer made. An offer terminated if any of following occur BEFORE acceptance:
(1) offeror revokes offer;
(2) offeree learns that offeror has taken action inconsistent with continuing ability to K;
(3) offeree rejects offer;
(4) offeree communicates counteroffer;
(5) offeror dies or becomes incapactitated;
(6) reasonable amount of time passes; or
(7) subject matter of offer becomes illegal or destroyed.
Terms Required in Offer
Certain terms MUST be included in offer for offer to be valid. Under common law, all essential terms must be specified in offer - (1) parties; (2) subject; (3) quantity; and (4) price. Under the UCC, the law plugs the gaps for missing terms - only required terms are (1) parties, (2) subject; and (3) quantity.
Perfect Tender (Performance under UCC)
Under UCC, perfect tender is required, which means seller must deliver conforming goods in accordance with terms of K. Smallest nonconformity is breach that allows buyer to reject all or portion of goods.
Three exceptions:
(1) parties can contractually change default rules to include substantial performance;
(2) installment contracts (agreement for delivery in separate lots) do NOT have to satisfy perfect tender - buyer can reject specific installment delivery when substantial impairment in installment that cannot be cured; and
(3) if seller fails to tender perfect goods, buyer MUSt give seller chance to cure nonconformity if time for performance under K has NOT yet expired OR seller has reasonable grounds to believe buyer would accept replacement for nonconformity.
