Contracts Flashcards
What law applies to a contract?
Sale of goods = UCC Art. 2
All other contracts = common law
Bilateral Contract
One consisting of the exchange of mutual promises (promise for a promise). Can be accepted in any reasonable way (promising or beginning performance)
What are the two situations where a unilateral contract might arise?
- Offeror clearly indicates that completion of performance is the only means of acceptance
- Where there is an offer to the public (ex. reward offer)
What are goods?
All things movable at the time they are identified as items to be sold under a contract.
Merchant
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 practices or goods involved.
What are the elements of a valid contract?
- Offer
- Acceptance
- Consideration
- No defenses to formation or enforcement
Valid Offer
- Manifestation of present intent to contract demonstrated by a promise, undertaking, or commitment
- Communicated to an identified offeree
- Definite and certain terms
When may a communication be a solicitation or invitation rather than an offer?
When it is conveyed using broad communication media or an advertisement
What terms must be included for a real estate transaction to have a definite offer?
Identify the land (deed description not required) and the price
What terms must be included in a contract for sale of goods?
The quantity being offered, unless it is a requirements or output contract.
How may an offer be terminated?
-Lapse of time
-Revocation
-Rejection
-Termination by operation of law
When may offer be terminated by lapse of time?
If it is not accepted within specified time period or within a reasonable time (if no specified time period)
When may offer be terminated by rejection?
-When offeree expressly states that they do not intend to accept
-When a counteroffer (but not a mere inquiry) is made by offeree
Does a rejection of an option terminate the offer?
No, they can still accept the original offer within the option period unless the offeror has detrimentally relied on the rejection.
When is a rejection effective?
When it is received by offeror
When may an offer be terminated by revocation?
-Directly, when the offeror expressly terminates the offer
-Indirectly, when the offeree receives correct information from a reliable source of acts to the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
*Effective when received
When are offers irrevocable?
- Option contract where offeree gives consideration to hold open offer (can be held open as long as parties specify)
- Merchant’s firm offer: when a merchant offers to buy or sell goods in a signed writing that gives assurances that it will be held open (no consideration required, no longer than 3 months)
- Detrimental Reliance, when offeror could reasonably expect that offeree would rely to detriment and offeree so relies
- Offer for a true unilateral contract once performance has begun
When will a contract be terminated by operation of law?
- Death or insanity of either party
- Destruction of proposed contract’s subject matter
- Supervening illegality
What is the traditional common law standard for acceptance?
Mirror image rule - there must be absolute and unequivocal acceptance of every term. Any different or additional terms in the acceptance result in a rejection and counteroffer.
What is the UCC standard of acceptance?
-An offer to buy goods for current or prompt shipment can be accepted by a promise to ship or by a shipment of goods (if nonconforming, it’s also a breach unless the buyer is notified that it’s an accommodation)
-battle of the forms: an acceptance that adds terms to an offer is valid. Between merchants, additional terms become part of the contract unless they materially alter the contract, the offeror objects, or the offer is limited to its terms.
What are the methods of acceptance?
-UCC = reasonable means
-Unilateral contract = performance
-Bilateral contract = promise or performance
When is acceptance effective by mail?
At the moment of dispatch, unless an exception applies:
-Offer stipulates that acceptance must be received to be effective
-option contract involved
-Offeree sends rejection first or sends rejection second but it arrives first and offeror detrimentally relies
Consideration
A bargained-for exchange with detriment to the promisee or legal benefit to promisor
*Substitutes may be promissory estoppel or detrimental reliance
Will a court consider adequacy of consideration?
No, unless something is entirely devoid of value
Is past consideration valid?
No, the preexisting duty rule makes performing or promising to perform an existing legal duty insufficient consideration EXCEPT:
-new or different consideration promised
-written promise to pay time-barred debt
-promise ratifying a voidable obligation
-compromise of honest dispute
-unforeseen circumstances make modification fair and equitable (modern rule) or rise to the level of impracticability (majority view)
-good faith modification under Art. 2
Does a modification require consideration?
Yes, traditionally a modification must be supported by new consideration.
The modern rule permits modification without consideration if (1) the modification is due to circumstances that were unanticipated when the contract was made and (2) it is fair and equitable
Under the UCC, a good faith promise of new and different terms is sufficient.
When is consideration not necessary? (Promissory Estoppel)
A promise is enforceable if necessary to prevent injustice if:
-The promisor should reasonably expect to induce action or forbearance AND
-Such action or forbearance is in fact induced
If this exists, reliance damages are typically awarded
What are defenses to enforcement?
- Mistake
- Fraud and misrepresentation
- Illegality of consideration or subject matter
- Incapacity
- Statute of Frauds
- Unconscionability
When may there be incapacity to contract?
- Infants (minors), can disaffirm once reaching age of majority
- Mental incapacity, can disaffirm during lucid interval or upon recovery
- Intoxication, can affirm upon recovery
- Duress, voidable
- Undue influence
When is unilateral mistake a defense?
The contract is voidable if nonmistaken party knew or should have known of mistake.
When is a mutual mistake a defense?
The contract is voidable by the adversely affected party if:
1. Mistake concerns based assumption on which contract was made;
2. Mistake has material effect; AND
3. Party seeking avoidance did not assume risk
Are ambiguous terms a defense?
-Neither party aware/both parties aware=no contract
-One party aware=contract
What if a mistake is made by an intermediary?
Prevailing view is that the message as transmitted is operative unless the other party knew or should have known of the mistake.
When is misrepresentation a defense?
When a party justifiably relies on a material misrepresentation (whether fraudulent or not) or a fraudulent representation
What are some examples of unconscionability?
-inconspicuous risk-shifting provision
-contracts of adhesion
-exculpatory clauses for intentional wrongful acts
(Determined at the time the contract was formed - court can refuse to enforce in whole or in part)
Statute of Frauds
Certain agreements must be evidenced by a writing signed by the party sought to be bound. MY LEGS
-Marriage as consideration for promise
-Promises that cannot be performed within one year
-Promises creating interests in land
-Executors and administrators (promises to pay estate debts from own funds)
-Goods for price of $500 or more
-Suretyship (promise to answer for debt of another)
What are exceptions to the Statute of Frauds?
-Contract modifications, if contract as modified does not fall under the SoF
-Part performance for land sale contracts (2/3: payment, possession, valuable improvement)
-Part performance for sale of goods if goods have been specially manufactured OR goods have been paid for or accepted
When is a writing not required?
- Specially manufactured goods where seller has made a substantial beginning
- If party against whom enforcement is sought admits in pleadings, testimony, or court that contract for sale was made
- Merchant’s Confirmatory Memo Rule: Between merchants, where one party sends within a reasonable time after an oral agreement, a written confirmation of the understanding. It binds sender, and also recipient if they know of the confirmation’s contents and do not object within 10 days.
What does the SoF require?
One or more writings that reasonably identify the subject matter of the contract, indicate that a contract has been made, and state with reasonable certainty the essential terms. (Plus a signature, which is liberally interpreted - letterhead may be sufficient under the UCC)
Parol Evidence Rule
When parties intend that a writing is the final expression of their bargain, no prior (oral or
written) or contemporaneous (oral) expressions are admissible to vary the terms of the writing
What is the effect of integration?
-Complete = writing cannot be contradicted or supplemented
-Incomplete = writing may not be contradicted but may be supplemented by proving additional consistent terms
What is the effect of a merger clause?
A merger clause states that the agreement is complete on its face. It is evidence of full integration.
What evidence outside the scope of the parol evidence rule may be admitted?
- Evidence concerning validity
- Evidence used to interpret (uncertain/ambiguous terms)
- Evidence showing true consideration paid
- Evidence in action for reformation
- Evidence showing subsequent modifications of a written contract
When rules conflict, what is the hierarchy?
- Express terms
- Course of performance
- Course of dealing
- Usage of trade
What are the Art. 2 gapfillers?
-Price = reasonable at time of delivery
-Place of delivery = seller’s business
-Time of shipment = reasonable
-Time for payment = receipt of goods
-Assortment = buyer’s option
Express Warranty
Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model if part of the basis of the bargain.
*Does not include statements of value or opinion
Implied Warranty of Merchantability
Warranty that the goods are merchantable (fit for ordinary purpose)
Implied in every contract for sale by a MERCHANT WHO DEALS IN GOODS OF THE KIND SOLD
Implied warranty of fitness for a particular purpose
Implied whenever any seller has reason to know (1) particular purpose for which goods are to be used and buyer is relying on seller’s skill and judgment to select those goods AND (2) buyer in fact relies on seller’s skill/judgment.
Warranty of Title
ANY SELLER warrants that the title transferred is good, that transfer is rightful and that there are no liens or encumbrances of which the buyer is unaware.
Warranty Against Infringement
MERCHANT SELLER regularly dealing in goods of the kind sold automatically warrants that the goods are delivered free of patent, trademark, copyright claims.
How to disclaim warranty of title
Only by specific language or circumstances putting buyer on notice that seller is not claiming title
How to disclaim implied warranty of merchantability
-Specific disclaimer must mention “merchantability” and be conspicuous if in writing
-Can be disclaimed by “as is,” buyer’s examination or refusal to examine, or course of dealing
How to disclaim implied warranty of fitness for a particular purpose
Conspicuous writing or general disclaimer (“as is,” refusal to examine, course of dealing)
How to disclaim an express warranty
Disclaimer is usually not given effect
When will a limitation on damages not be upheld?
If it is unconscionable or if it limits damages for personal injury caused by breach of warranty on consumer goods.
What damages are available for breach of warranty?
Difference between goods tendered and goods as warranted
To whom do warranties extend?
Majority view is that seller’s warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer’s home.
