Contracts Flashcards
UCC governs all contracts involving
sale of goods
Common law rules govern all contracts involving
services
When a K includes both goods and services, whichever one _______ will determine the governing law
predominates
Merchants include (3)
- A person who regularly deals in the type of goods involved in the transaction
- A person who by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction
- In some instances, any businessperson when the transaction is of a commercial nature
A valid K requires (3)
Offer, acceptance, consideration
An offer requires what to the offeree
a promise, terms, and communication to the offeree
Promise
A statement indicating a present intent to enter into a contract
CL rule for terms of K
All terms must be provided (parties, subject matter, price, quantity)
UCC rule for terms of K
Essential terms are the parties, subject matter, and quantity. A court will gap fill any missing terms
If the K is silent as to delivery, the default place for delivery under the UCC is
Seller’s place of business
The offer must be ______ to the offeree
communicated
Bilateral contract
K in which parties exchange promises, can be accepted by a promise OR by beginning performance
Unilateral contract
K in which the offeror makes a promise and the offeree must perform; can only be accepted by complete performance
Offered _______ and _________ often indicate a unilateral contract
rewards and contests
To form a unilateral contract, the offeree must (2)
- know about the offer and 2. intend to accept the offer by completing performance
Option contracts (CL)
An offer where the offeror promise to hold the offer open for a certain period of time; the offerree must pay consideration to the offeror to hold the offer open
Firm Offers (UCC)
Offeror is a merchant and the offeror gives assurance that the offer will remain open in a signed writing
Irrevocability of a firm offer cannot exceed _____ days
90
An offer can be terminated if the offeror
revokes the offer prior to acceptance
Revocation is effective when _____
received
Constructive revocation
If the offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer, the offer if automatically revoked
Offers can be irrevocable in certain circumstances (2)
- Option/firm offer
- Unilateral contracts: if the offeree has started to perform under a unilateral contract, the offeror cannot revoke the offer
Counteroffer by offeree
A counteroffer acts as a rejection of the original offer and creates a new offer
If the offeror dies before the offer is accepted, the offer will be _____
terminated
Acceptance is the
objective manifestation by the offeree to b abound by the terms of the offer
Bilateral K can be accepted by
a promise OR beginning performace
Unilateral K can be accepted by
complete performance
Mirror-image rule (CL)
The acceptance must mirror the terms of the offer. Any changes/additions to the terms constitute a rejection of the original offer and counteroffer.
Under the UCC, if one or both parties are not merchants, an acceptance from the offer with changes and additions will be a _____
valid acceptance However, the contract will not include the changes or additions unless the offeror agrees to them
Under the UCC, if both parties are not merchants, an acceptance from the offer with changes and additions will be a
valid acceptance and the K will include the changes or additions unless: they materially alter the terms of the original offer, the original offer limits acceptance to the terms of the offer, or the offeror objects to the changed or new terms
Mailbox Rule
Acceptance is valid once it is placed in the mail
What happens if a party mails a rejection of an offer then mails an acceptance
First communication to be received is effective
Exception to mailbox rule for option K or firm offer
Acceptance only valid when received before the offer expires
Consideration
Bargained-for change in the legal position between parties. Both sides must have a legal detriment (promise to do/not do something or performance/refraining from performance)
Preexisting Duty Rule
A promise to perform a preexisting legal duty will not qualify as consideration because the promisor is already required to perform by the promisor (i.e. no additional legal detriment is being incurred)
Moral consideration
Under the modern trend, a promise not supported by consideration may be enforceable if it is made in recognition of a significant benefit previously received by the promisor from the promisee
Under promissory estoppel, the promise will be binding in the absence of consideration if (3)
- promisor should reasonably expect the promise to induce action or forbearance
- the promise actually induces action or forbearance and
- injustice can be avoided only by enforcement of the promise
Damages awarded under promissory estoppel are usually limited to _______ damages
reliance
Defenses to formation of K
Mistake, Fraudulent Misrepresentation, Undue Influence, Duress, Capacity
Mutual mistake applies if _____ ______ are mistaken as to an ______ element of the K
both parties; essential
If mutual mistake, the parties can ask a court to reform the K and rewrite it to reflect the correct elements of the K.
reformation
Reformation is available if (3)
- There was prior agreement (written or oral) between the parties
- There was an agreement by the parties to put that agreement into writing; and
- as a result of the mistake, there is a difference between the prior agreement and the writing
If reformation is not available, the K may be voidable if (4)
- a mistake of fact existing at the time K was formed
- the mistake relates to a basic assumption of K
- mistake has material impact on the transaction AND
- adversely affected party did not assume the risk of the mistake
Unilateral mistake
Applies if one party is mistaken as to an essential element of the K
The mistaken party can rescind the K if (2)
- the mistake would make enforcement of the K unconscionable or
- non-mistaken party failed to disclose the mistake or caused the mistake
Fraudulent misrepresentation
Intentional misrepresentation of a fact that the innocent party justifiably relies on
2 types of fraud
fraud in the factum and fraud in the inducement
Fraud in the Factum
If a fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction, the apparent contract is void
Fraud in the Inducement
If a fraudulent misrepresentation is used to induce another to enter into a K, the contract is voidable by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement
Undue Influence
Occurs when a party unfairly persuades the other party to assent to a K
Duress occurs when a party is
improperly threatened and feels he has no meaningful choice but to agree with the K
When a party’s agreement to enter into a K is physically compelled by duress (eg threat to inflict physical harm), the contract is _____
void
When a party is induced to enter into a K due to other duress (eg a threat of pursuing a civil action in bad faith) the K is _______
voidable
SOF requirements
There must be a writing signed by the person to be charged (the person against whom enforcement is sought) that contains the essential terms of the deal
Statute of Frauds applies to Ks involving (5)
- Marriage
- Suretyship
- Ks that cannot be performed within one year of making
- Sale of goods for $500 or more
- Real property
If SOF not met, court will still enforce Ks that cannot be performed within one year of making if
Full performance has occurred by either party
For sale of goods for $500 or more, no writing required if K involves ______ _____ _____ of the buyer
specially manufactured goods
For sale of goods $500 or more without a writing, a K is enforceable against the receiving party if…(letter or memorandum of confirmation) (3)
- Both parties are merchants
- A party sends a confirmatory letter/memo that meets the SOF (writing, signed, essential terms of the deal) to the other party; and
- the other party knowingly receives the memo and does not object in writing within ten days
If a K involves the sale of land, and there is no writing, the K will be enforced if at least 2 of the following 3 acts have occurred
- the purchaser pays part or all of the purchase price
- the purchaser takes possession of the land; or
- the purchaser substantially improves the property
K by estoppel
If a party reasonably and detrimentally relies on a promise, a court may enforce the K against the other party
A court will/will not enforce a K that involves illegal consideration or performance
will not
Unconscionability
A court will not enforce a K that is so unfair, no reasonably person would agree to it
What are 3 remedy options to an unconscionable K
- Refuse to enforce the entire K
- Strike the unconscionable portion
- limit the unconscionable terms
2 types of unconscionability
- Procedural: Bargaining process leading to the formation of the K is unfair
- Substantive: Actual terms of the K are significantly unfair
Express warranty
Any promise or description that is part of the basis of the bargain is an express warranty, unless it is merely the seller’s opinion/commendation of the value of the goods
Disclaimer clauses that conflict with express warranties are ________
ignored
Implied warranty of merchantability
A warrant of merchantability is implied whenever the seller is a merchant and to be merchantable the goods must be fit for their ordinary purpose and pass without objection in the trade under the K description
The implied warranty of merchantability can be disclaimed through (2)
- a clear written “as is” statement or 2. an oral statement that uses the term merchantability
Implied warranty of fitness for a particular purpose
A warranty that the goods are fit for a particular purpose is implied if the seller has reason to know that the buyer has a particular use for the goods and the buyer is relying upon the seller’s skill to select the goods
*The seller need not be a merchant
Can the implied warranty of fitness for a particular purpose be disclaimed?
Yes, the warranty can be disclaimed by general language such as “as is” but the disclaimer must be in writing and conspicuous
Modification
After a valid K has been formed, any change to the terms of the K is a modification
Under CL, a modification must be supported by _______
consideration
Pre-existing duty rule
If a party offers to pay more money to the other party to guarantee completion of the K on time, the modification will be unenforceable under CL due to lack of consideration
Under the UCC, a modification does not require additional consideration as long as the modification is entered into in ____ _____ by both parties
good faith
A provision prohibiting oral modifications to a sales contract is in/valid, even if the modification would not otherwise fall within the SOF
Valid
When there is a ______ _______ over the validity of the K or the amount owed, a party can agree to accept a different performance from what was agreed upon in the K
genuine dispute
Accord
A new agreement where a party agrees to accept a different performance than what was agreed upon
Satisfaction
Occurs when the different performance is completed by the other party, which discharges the original K duties and the accord agreement duties
Parol Evidence Rule
Extrinsic evidence of oral or written communications prior to the written K (or contemporaneously) are generally inadmissible for contradicting the terms of the K
Total integration
The writing contains all the terms of the agreement
Merger clause
If the K has a merger clause stating that the contract is the final and complete understanding of the parties, it is likely to be a total integration
Partial integration
The writing contains some of the terms of the agreement
Parol evidence is admissible to supplement the writing of a partial integration as long as it is ________ with the writing
consistent, doesn’t contradict any of the terms
Parol evidence will be admissible in these situations (5)
- subsequent agreements
- ambiguity and interpretation
- collateral deal (evidence of a separate deal between the parties)
- UCC (evidence of usual performance and dealing between the parties)
- Condition precedent (to the existence of the K)
Promises
Parties may engage in contractual promises which require them to act or refrain from acting
Standard of performance under CL
substantial performance
Standard of performance under UCC
Perfect tender
A party who has not substantially performed generally cannot recover damages based on the K, but she may be able to recover damages through __________
restitution
A party who fails to substantially perform is in ______ ______
material breach
UCC perfect tender rule
The parties must strictly perform all duties under the K, or they will be in breach
If either the tender or the goods are nonconforming, then the buyer has the right to
accept or reject all or part of the goods
Right to cure
If a buyer rejects goods as nonconforming, and time still remains to perform under the K, the seller has the right to cure and tender conforming goods
Installment contract
Goods are to be delivered in multiple shipments
Under an installment K, the buyer can reject only if the nonconformity….
Substantially impairs the value of that shipment to the buyer and cannot be cured
Under an installment K, if the seller makes adequate assurances that he can cure nonconformity, the buyer…
must accept the shipment
For an installment contract, the buyer may cancel the entire contract only if the nonconformity…
substantially impairs the value of the entire contract to the buyer
Condition
A future event that must occur before a party’s contractual rights or obligations are created, destroyed, or enlarged
If a condition is not met, there may be no
K at all
Implied condition
Conditions which a court may find exist because the nature of the K suggests that the parties intended the condition
A condition may be waived by _____ or ______ , the waiving party would then have a duty to perform
words or conduct
Wrongful interference
If a party hinders the other party’s performance and interferes with the occurrence of the condition, the condition will be excused, and the wrongful party will have the duty to perform
If a party indicates that it will not enforce a condition, and the other party reasonably relies on this, the party will be _______ from later enforcing the condition
estopped
3 instances in which promisor party’s duty to perform will be discharged
- Impracticability
- Impossibility
- Frustration of purpose
A duty may be discharged under impracticability if (2)
- an unforeseeable event occurs (eg natural disaster) making the performance of the K extremely difficult
- the nonoccurrence of the event was a basic assumption at the time of the k
Under impracticability, the party seeking discharge must not be at _______
fault
Impossibility
An unforeseeable event occurs, making it objectively impossible for the party to perform
Frustration of purpose
If an unexpected event arises that destroy the party’s purpose for entering the K, the party will be entitled to rescind the contract, even if the performance is still possible
A 3rd party beneficiary K results when the parties to a K intend that the
performance by one of the parties is to benefit a third person who is not a party to the K
Intended v. incidental beneficiaries
When a K benefits persons other than the parties to the K, a third party can enforce the K if the 3rd party is an intended beneficiary. Otherwise, the 3r party is an incidental beneficiary who cannot enforce the K.
Assignments of K rights are not allowed when they (2)
- materially increase the duty or risk of the obliger
- materially reduce the obligor’s chance of obtaining performance
When K obligations are delegated, the _______ is not released from liability
delegator
Breach
If a duty to perform exists and has not been discharged, a party’s non-performance is a breach
Anticipatory breach/repudiation
Occurs when a promisor party indicates that it will not perform prior to the date that performance is due
Under CL, if the party clearly and unequivocally indicates through words or acts that it will not perform, the non breaching party can (4)
- treat the repudiation as a breach of K and sue immediately
- suspend its own performance and demand performance from the promisor
- cancel the K or
- wait for the date of performance and then sue for breach
Under CL, the promisor party can retract its repudiation until/unless the other party (3)
- acts in reliance on the repudiation
- accepts the repudiation or
- has already filed an action for breach of contract
Under the UCC, anticipatory breach occurs when the buyer/seller (2)
- unequivocally refuses to perform or
- fails to provide timely adequate assurances
A failure to provide reasonable assurances within a reasonable time (____ days) can be treated as a repudiation
must not exceed 30 days
Under UCC, if anticipatory breach, the nonbreaching party can (4)
- treat the repudiation as a breach and sue immediately
- suspend its own performance and demand performance from the promisor
- cancel the K or
- wait for the date of performance and then sue for breach
The promisor party can retract its repudiation of the K until/unless the other party has (3)
- cancelled the K
- materially changes position on the basis of repudiation or
- otherwise indicated that he considers the repudiation to be final
Under CL, a material breach occurs when
the nonbreaching party does not receive the substantial benefit of the bargain
Under CL, when a material breach occurs, the nonbreaching party can
withhold any promised performance and pursue remedies for breach
Under CL, a minor breach occurs when
the breaching party has substantially performed, but not fully performed
The nonbreaching party is entitled to pursue remedies for the minor breach, but it still
must perform under the k
Expectation damages
Calculated by comparing the value of performance without the breach (K price for performance) and the value of the performance with the breach (fair market value of performance)
If the award of expectation damages would result in economic waste, then the courts may instead award damages equal to
diminution in value
The court may award expectation damages even if that award would result in economic waste if…
the breach is willful and only completion of the K will give the nonbreaching party the benefit of its bargain
Consequential damages
Reasonably foreseeable damages other than expectation damages that are related to the breach of the K (e.g., loss of profit)
In order to recover consequential damages, 3 elements must be met
- foreseeability
- causation
- certainty
Reliance damages
Damages that the nonbreaching party incurs in reasonably reliance upon the promise that the other party would perform
A party cannot recover both ______ and _______ damages, it must choose between them.
reliance and expectation
Incidental damages
Damages that arise when the nonbreaching party is trying to remedy the breach (e.g. in a commercial K, the cost of finding a replacement seller of goods)
Duty to mitigate damages
Nonbreaching party has duty to avoid or mitigate its damages by taking reasonable steps to seek replacements/substitutes for goods and/or services
A failure to take reasonable steps to mitigate damages will_______ the damages recovered by the nonbreaching party
reduce
a misrepresentation about the contents or effect of a writing is ground for reformation if (30
misrepresentation was fraudulent, it induced assent to the K, and the adverse party affected party’s reliance was justifiable
An _______ clause releases a party from liability for damages caused during the execution of the K. This would include damages caused by the delegates, so the party to be released cannot delegate his dutiess without the the other party’s consent
exculpatory
An implied in fact contract arises when a party’s assent to enter a contract is inferred from the party’s
conduct or failure to act
