Contracts Flashcards
What is a quasi contract?
Not a contract at all. One party is unjustly enriched at the expense of the other party, so that the enriched party must pay restitution to the other party equal to the unjust enrichment.
What is a bilateral contract?
An exchange of mutual promises (e.g., a promise for a promise)
How can bilateral contracts be accepted?
In any reasonable way
What is a unilateral contract & what are two examples of unilateral contracts?
A unilateral contract is one in which the offeror requests performance rather than a promise.
Examples are (1) when the offeror clearly indicates that completion of performance is the only manner of acceptance and (2) where there is an offer to the public such as a reward offer.
What is a void contract?
A void contract is one that is without any legal effect from the beginning and cannot be enforced by either party.
What is a voidable contract?
A voidable contract is one that one or both parties may elect to avoid or enforce.
What is an unenforceable contract?
An unenforceable contract is otherwise valid, but isn’t enforceable due to a defense.
What is a good for the purpose of UCC?
All things moveable
What is a merchant for the purpose of UCC?
One who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practice or goods involved.
Which law applies when both a sale of goods and a service is involved?
Determine the dominant aspect of the contract and apply the law government that aspect to the entire contract
What is required in every UCC and CL contract?
Every contract imposes an obligation of good faith and fair dealing in its performance and enforcement.
What is good faith?
Honesty in fact and the observance of reasonable commercial standards
What are the three required elements for an enforceable contract?
Mutual assent (offer/acceptant), consideration, and no defenses
What is mutual assent and what is the standard to determine whether mutual assent is present?
Mutual assent means that one party accepted another party’s offer. Whether mutual assent is present is determined by an objective standard, i.e., did words or conduct manifest a present intent to enter into a contract?
What is an offer?
An offer creates a reasonable expectation in the offeree that the offeror is willing to enter into a contract.
What questions do we ask in determining if there was a valid offer?
- Was there an expression of a promise, undertaking, or commitment to enter into a contract?
- Was there certainty and definiteness in the essential terms?
- Was there communication of the above to the offeree?
Are advertisements offers?
No, usually they are mere invitations for offers
What does it mean for an offer to have definite and certain terms?
- The offeree must be identified
- The subject matter of the deal must be certain
What terms are required in an offer for real estate contracts?
- Identify the land
- Price
What terms are required in an offer for sale of goods?
The quantity
What terms are required in an offer for employment or other services?
If the duration of the employment is not included, it is assumed that the contract is terminable at will of either party.
What terms are required in an offer for services?
The nature of the work to be performed must be included in an offer for services.
Does the failure to state the price prevent contract formation?
Only in real estate contracts
If a material is vague or ambiguous, is there an offer?
No, not at CL or UCC
Can terms be agreed upon at a later date?
No, not if the term is material, the offer is too uncertain
When does an offer terminate for lapse of time?
When the offeree fails to accept within the required time frame specified in the offer or if no deadline was specified, within a reasonable amount of time.
What is a counteroffer?
A rejection and a new offer
What is a conditional acceptance?
A rejection and a new offer
When is a rejection effective?
When it is received by the offeror.
What happens when an offeree rejects an option contract?
The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.
When can an offer made by publication be revoked?
Only by publication through comparable means
When may an offer be revoked indirectly?
If the offeree receives:
1. Correct information
2. From a reliable source
3. Of acts by the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
When is a revocation effective?
When received/published/delivered
When can an offeror revoke her offer?
At will
What are the exceptions to the rule that an offeror can revoke her offer at will?
- Option contracts
- Merchant firm offer
- Detrimental reliance
- Beginning performance
DROMB
What is a merchant firm offer?
When a merchant offers to buy or sell goods in a signed writing and the writing gives assurances that it will be held open during the time stated (can’t exceed 3 months/reasonable time if not stated) WITHOUT CONSIDERATION
What happens if a merchant firm offer has consideration to hold the offer open?
It is an option contract and is not limited by a three month time frame anymore
What is detrimental reliance and when does it usually come up?
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer and the offeree does so rely, the offer is irrevocable as an option contract for a reasonable amount of time.
Usually contract bidding problem
What is the result of beginning performance on a true unilateral contract?
Becomes irrevocable once performance begins and the offeree has a reasonable amount of time to complete performance
Is the offeree bound to complete performance once they began in response to a unilateral contract?
No, but there is no acceptance until performance is complete
Do substantial preparations to perform make the offer irrevokable?
No, but mat constitute detrimental reliance
What happens when the offeree begins performance on a bilateral contract or a contract that doesn’t specify manner of acceptance?
Once the offeree begins performance, the contract is complete and revocation is impossible.
When does an offer terminate by law?
Death or incapacity of either party (unless option), destruction of the proposed contract’s subject matter, or supervening illegality.
What is an acceptance?
A manifestation of assent to the terms of an offer.
When is silence acceptable acceptance?
When, because of prior dealings or trade practices, it would be commercially reasonable for the offeror to consider silence as acceptance
What is the mirror image rule?
Under CL, any different or additional terms in the acceptance make the response a rejection and counteroffer.
When is a unilateral contract accepted?
When performance is completed
How may an offer to buy goods for current or prompt shipment be accepted?
- By promise to ship or
- Prompt shipment
What happens when nonconforming goods are shipped?
Acts as an acceptance creating a bilateral contract as well as a breach of the contract.
What is the accommodation shipment rule and what can the buyer to with the goods?
When the seller sends nonconforming goods but notifies the buyer that the shipment has nonconforming goods and they are being offered as an accommodation.
The buyer may reject, but the buyer isn’t in breach because the tender of nonconforming goods does not constitute acceptance.
Is the mirror image rule required for the UCC?
No, different/additional terms constitute an acceptance unless the acceptance is made expressly conditional on the assent of the additional terms.
If any party to the contract is not a merchant, what happens to the additional/different terms in the acceptance?
The additional/different terms are considered proposals to modify the contract and do not become part of the contract unless the offeror expressly agrees.
If the parties to the contract are merchants, what happens to the additional terms in the acceptance?
Additional terms are included unless they materially alter the original terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror already objected to the terms or objects within a reasonable time.
If the parties to the contract are merchants, what happens to the different terms in the acceptance?
- Different terms are included unless they materially alter the original terms of the offer, the offer expressly limits acceptance to the terms of the offer, or the offeror already objected to the terms or objects within a reasonable time; OR
- The terms knock each other out of the contract
Is a merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to the battle of the forms provisions?
Yes
Does the mailbox rule apply if the address is written wrong? If the letter gets lost at no fault of the sender?
No
yes
When is acceptance by mail effective?
At the moment of dispatch
When does the mailbox rule not apply?
- When the offer stipulates acceptance is not effective until received
- Option contracts (acceptance only effective upon receipt)
- Offeree sends rejection then acceptance (whichever is arrives first is effective)
- Offeree sends acceptance then rejection, rejection is received first, and offeror detrimentally relies on it
What is consideration?
A bargained for exchange of legal value that constitutes a benefit to the promisor or a detriment to the promisee.
Is there valid consideration in gifts?
No
Is moral obligation consideration?
No
What is past consideration and is it valid?
Past consideration is a promise given in exchange for something already done and is not valid consideration.
Do courts generally inquire into the adequacy or fairness of consideration?
No
What is preexisting legal duty and is it valid consideration?
Performing or promising to perform an existing legal duty is insufficient consideration.
Does a good faith modification to a UCC contract require consideration?
No
Is modification of an existing contract without consideration new valid?
Generally no. However, courts have held that if (1) the modification is due to circumstances that were unanticipated by the parties when the contract was made and (2) it is fair and equitable, the modification can be made without new consideration.
What is an illusory promise?
When only one party is bound to perform
When is consideration NOT necessary?
Promissory Estoppel:
1. When the promisor should reasonable expect to induce action or forbearance; and
2. Such an action or forbearance is in fact induced
Are contracts of minors binding?
On the adult yes, on the minor no
What is disaffirmance by a minor?
A minor may choose to disaffirm a contract any time before or shortly after reaching the age of majority otherwise the contract is affirmed.
Can mentally incapacity limit contracts?
Yes, a contract is voidable if entered into by a mentally incapacitated person. If they have a guardian, then it is void.
What happens to contracts for necessities that have valid defenses?
They are considered quasi-contracts and the person is liable in restitution for the value of the benefits received.
Can intoxicated people enter into contracts?
Yes, but the contract is voidable of the other person had reason to know of the intoxication
What are contracts induced by duress or undue influence?
Voidable
Is taking advantage of someone’s economic needs duress?
No, unless the party threatens to commit a wrongful act that would seriously threaten the other party’s property or finances and there is not adequate means available to prevent the threatened loss
What is undue influence?
(1) Undue susceptibility to pressure by one party and (2) excessive pressure by the other party (caregiver kind of scenario)
Defense: Misunderstanding
When a contract term has two possible meanings:
1. Neither party was aware - No contract unless intended the same meaning
2. Both parties were aware - No contract unless intended the same meaning
3. One party aware - Binding contract based on what the ignorant party reasonably believed the term meant
Defense: Mutual Mistake
Contract voidable by adversely affected party if:
1. Mistake concerns a basic assumption on which the contract is made
2. The mistake has a material effect on the exchange AND
3. The party seeking avoidance did not assume the risk
Is a mutual mistake in value a defense?
Generally, no
Defense: Unilateral Mistake
If non-mistaken party knew or had reason to know of the mistake, contract is voidable by mistaken party
Defense: Fraudulent misrepresentation
If a party induces another to enter into a contract by using fraudulent misrepresentation the contract is voidable by the innocent party if they justifiably relied on the misrepresentation.
Defense: Material Misrepresentation
Contract is voidable by innocent party if they justifiable relied on a misrepresentation and the misrepresentation was material aka would induce a reasonable person to agree or this person has a special reason for agreeing (regardless of fraud)
Defense: Illegality
If the subject matter of the contract is illegal, the contract is void
Defense: Unconscionability
Courts can modify or refuse to enforce an entire contract or provision to avoid unfair terms due to some unfairness in the bargaining process.
What agreements must be in writing signed by the party sought to be bound (SoF)?
- In consideration of marriage
- A promise that cannot be performed in one year
- Interest in land (includes leases more than 1 year)
- Executor promises to pay estate debts
- Good $500 or more
- Surety (promise to pay the debt of another)
Who may raise the defense of lack of sufficient writing?
The party being sued
If a contract is modified and falls into the SoF, must it be in writing?
Yes
When does a land sale contract with no writing satisfy SoF?
- payment in whole or in part, possession, and/or valuable improvements (need 2/3)
When are sales of goods $500 or more removed from SoF?
When the goods have been specially manufactured or the goods have been either paid for or accepted.
What is a merchant’s confirmatory memo?
If one merchant within a reasonable time after entering into an oral agreement sends a written confirmation to the other party it binds the sending party immediately. If the recipient merchant does not object within ten days of receipt it binds the recipient as well.
When is a writing not required?
- Specially manufactured goods
- Admissions in pleadings or court
- Merchant confirmatory rule
What is the parol evidence rule?
Bars the introduction of prior or contemporaneous oral agreements that vary or modify the terms of a complete and totally integrated agreement.
When is the writing an “integration”?
- Was the writing intended as the final expression of the agreement; and
- Was the integration intended to be complete or partial
When an integration is complete, can the writing be contradicted or supplemented?
No
When an integration is partial, can the writing be contradicted or supplemented?
It cannot be contradicted, but it can be supplemented by proving consistent additional terms
What is the effect of a merger clause in the PER?
A merger clause recites that an agreement is complete and is usually determinative.
Uncertainty & ambiguity & PER
If there is uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms, parol evidence can be received to aid the fact finder in reaching the correct interpretation of the agreement.
Can parol evidence be used to show subsequent modifications to an existing contract?
Yes
UCC PER
Generally the same as CL, however evidence of course of performance, course of dealing, and usage of trade are admissible regardless of ambiguity.
UCC Gap Filer for Price
Reasonable price at the time of delivery
What is an express warranty?
Any affirmation of fact or promise made by the seller to the buyer, description of goods, and any sample or model
What is the implied warrant of merchantability?
Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable or fit for the ordinary purpose for which such goods are used.
Can the IWM be disclaimed?
Yes as long as it is conspicuous or by language such as “as is” or “with all faults”
If a buyer had a right to reject the goods, when does the risk of loss pass to the buyer?
When the defects are cured or the buyer accepts the goods in spite of their defects.
What is required of performance at CL?
Substantial performance
What is required of performance at UCC?
Perfect tender
What is anticipatory repudiation?
Occurs if the promisor, prior to the time set for the performance of their promise, clearly indicates that they won’t perform when the time comes.
What are a parties options if the conduct does not rise to a level of anticipatory repudiation?
The party can seek adequate reassurances and suspend performance until he receives assurance.
What are the non-repudiating parties options if there has been an anticipatory repudiation?
- Treat it as total repudiation and sue immediately
- Suspend their own performance and wait to sue until performance is due
- Treat as an offer to rescind and treat the contract as discharged
- Ignore and urge promisor to perform
How to retract an anticipatory repudiation?
May withdraw at any time unless the other party canceled, materially changed their position in reliance, or otherwise indicated that they considered the repudiation final
What is perspective inability or unwillingness to perform?
Occurs when a party has reasonable grounds to believe the other party will be unwilling or unable to perform and is not considered an anticipatory repudiation unless the other party fails to provide adequate reassurances
What is discharge by impossibility?
Contractual duties are discharged if it has become impossible to perform them. Examples include:
1. Death or physical incapacity of a person necessary to effectuate the contract (person must offer unique services that can’t be completed by someone else)
2. Supervening illegality
3. The contracts subject matter is destroyed
Is a contractor’s duty to construct discharged by the destruction of the work in progress?
No
What is discharge by impracticability?
Performance becomes impracticable when the party to perform has encountered extreme and unreasonable difficult and/or expense and its nonoccurence was a basic assumption of the parties. Examples include:
1. Shortage of raw materials
2. War, strike, embargo, or unforeseen shut down of a major supplier
3. Catastrophic crop shortage
NOT mere increase in costs
What is discharge by frustration?
When the purpose of the contract has become valueless by virtue of some intervening event not the fault of the party seeking discharge and the intervening event was not reasonably foreseeable. Additionally, the purpose of the contract must be realized by both parties.
What are the differences in remedies between a material breach and a minor breach?
A minor breach may allow the aggrieved party to recover damages, but they still must perform under the contract. If the breach is material, the aggrieved party need not perform.
What type of contracts is specific performance available for?
Land contracts, goods that are rare or unique
What types of contracts are specific performance not available for?
Services, however, a court may enjoin the employee from working elsewhere
Demand for reassurances vs. anticipatory repudiation
The right to demand reassurances arises when there are reasonable grounds for insecurity.
Anticipatory repudiation is a clear indication that the other party is unwilling or unable to perform.
To recover for consequential damages, the breaching party must have
known or had reason to know of the special circumstances giving rise to damages (damages were reasonably foreseeable)
Are punitive damages awarded in contract cases?
No
Who is a third-party beneficiary?
- Person identified in the contract
- Received performance directly from promisor
- Has some relationship with the promisee to indicate intent to benefit
Can a contract be modified or cancelled without the third party beneficiaries’ permission?
No, if their rights vested
When does a TPB’s rights vest?
- When they learn of the contract and assent to the contract
- When they find about about the contract and detrimentally rely on it
- When they bring a lawsuit to enforce the contract
What are three rules about assignments and delegations?
- Generally, all duties may be delegated/assigned except unique personal services contract and long-term requirement contracts
- Can be oral or in writing
- Can be gratuitous (revocable) or for value (irrevocable)
What damages is a breaching party entitled to?
The reasonable value of services provided - damages incurred by the non breaching party
Non breaching seller standard remedy under UCC
Contract price - resale price
What is an accord?
An agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other different performance.
