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Contracts Flashcards

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1
Q

Contract Formation

What is needed to FORM a contract?

A
  1. mutual assent (offer + acceptance)
  2. consideration
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2
Q

Contract Formation: Offer

How is an offer CREATED?

A
  1. objective manifestation of intent––offeror has INTENT (willingness) to enter into a bargain
  2. definite and certain terms––offer has terms sufficient to allow a court to enforce K (e.g.,identity of parties, subject matter, price, quantity, etc.); and
  3. communication to an identified offeree––offeror is COMMUNICATED to offeree
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3
Q

Contract Formation: Offer

What is the requisite INTENT for creation of an offer?

A

Reasonableness standard - i.e., whether a reasonable person would believe the communication is an offer inviting acceptance

If yes –> intent met!

offeror manifests WILLINGNESS to enter into K!

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4
Q

Contract Formation: Offer

What are the essential terms for Ks under the COMMON LAW?

A
  1. Identity of Parties
  2. Description of property/service
  3. Quantity
  4. Price
  5. Time for Performance (duration)
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5
Q

Contract Formation: Offer

What are the essential terms for Ks under the UCC?

A

UCC allows for gap-filling –> only truly essential term is QUANTITY
* there is an assumption that there are “market prices” that can fill in the gaps –> price need not be stated

OVERARCHING PRINCPLE = K formed if
* both parties intend to K; and
* there is a reasonably certain basis for giving remedy

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6
Q

Contract Formation: Offer

Essential Terms for Ks under UCC: Requirements and Output Contracts

A

A requirements or output contract will NOT fail for lack of quantity.
* the amount sold or requested must:
(a) be in good faith and
(b) not unreasonably disproportionate to a stated estimate or prior comparable out

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7
Q

Contract Formation: Offer

Valid Ways to TERMINATE an offer

A

WAYS TO TERMINATE AN OFFER:.
1. Lapse of Time (reasonable time)
2. Rejection (expressly or counteroffer)
3. Revocation (expressly or constructively)
4. Operation of law
(a) Death/Mental Incapacity of either party
(b) Destruction/illegality of subject of offer

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8
Q

Contract Formation: Offer

Rejection (definition & effect)

Termination of Offer

A

definition
* manifestation of intent to NOT accept the offer

effect
* terminates offeree’s ability to accept offer

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9
Q

Formation of Contracts

Methods of REJECTING an offer

A

methods of rejection:
1. express rejection
2. counteroffer
3. conditional acceptance
4. acceptance with additional terms

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10
Q

Contract Formation: Offer

When does a REJECTION become effective?

Termination of Offer

A

effective when received by the offeror
* NOTE: if rejection is sent FIRST and THEN an acceptance is sent –> whichever is received FIRST is effective

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11
Q

Contract Formation: Offer

If a rejection is sent and then an acceptance is sent, which communication is effective?

Termination of an Offer

A

whichever is received FIRST by the receipient

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12
Q

Contract Formation: Offer

Methods of Revocation

Termination of an Offer

A

Methods of REVOKING an offer:
1. express revocation
2. constructive revocation

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13
Q

Contract Formation: Offer

UCC: When does REVOCATION become effective?

Termination of an Offer

A

a person receives notice of revocation when
1. it comes to that person’s attention, or
2. it is duly delivered in a reasonable form at the offeree’s place of business.

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14
Q

Contract Formation: Offer

What is EXPRESS revocation?

Termination of an Offer

A

unambiguous statement by offeror to the offeree

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15
Q

Contract Formation: Offer

What is CONSTRUCTIVE revocation?

Termination of an Offer

A

offerree becomes aware of offeror’s unambigous conduct or statement indicating an unwillingness or inability to contract

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16
Q

Contract Formation: Offer

Irrevocable Offers
(FOUR) categories

Termination of Offer: Irrevocable Offers

A

An offer can be revoked unless it falls into one of the (FOUR) categories:
1. F - Firm offer by a merchant in a signed writing under the UCC.

  1. O - Option contract - a promise to hold open the offer plusconsideration for that promise
  2. U - Unilateral K = if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.
  3. R - Reasonably foreseeable detrimental reliance on the offer by the offeree
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17
Q

Contract Formation: Offer

UCC Firm Offer:
Requirements

Termination of Offer: Irrevocable Offers

A

Offer to buy/sell goods is irrevocable if:
1. the offeror is a merchant (any business person when transaction is commercial in nature)
2. there is an assurance that offer is to remain open for a stated time (or, if not stated, reasonable time up to 3 months)
3. the assurance is contained in a signed writing from the offeror

NOTE: NO CONSIDERATION REQUIRED

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18
Q

Contract Formation: Offer

UCC Firm Offer:
Duration of Irrevocability Period

Termination of Offer: Irrevocable Offers

A

DURATION: period of irrevocability = either
(i) as long as stated in the offer; or
(ii) for a reasonable period not to exceed 90 days

NOTE: If no stated duration –> reasonable period not to exceed 90 days

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19
Q

Contract Formation: Offer

Option Ks: Requirements for Consideration
(difference b/t COMMON LAW vs. UCC)

Termination of Offer: Irrevocable Offers

A

COMMON LAW
* consideration required in exchange for option

UCC:
* no consideration required

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20
Q

Contract Formation: Offer

UCC Firm Offer:
Writing Requirement when OFFEREE provides firm offer form to OFFEROR

Termination of Offer: Irrevocable Offers

A

If promise to hold offer open is on a form supplied by offeree –>
* must be separately authenticated by offeror to protect against inadvertent signing
* term of assurance must be separately signed “(e.g., by placing initials next to the sentence w/ assurance)

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21
Q

Contract Formation: Offer

Unilateral K + Offeree STARTS PERFORMANCE

Termination of Offer: Irrevocable Offers

A

start of performance makes offer irrevocable…
* for a reasonable time to complete performance
* start of performance MUST go beyond mere preparation

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22
Q

Contract Formation: Offer

Detrimental Reliance by Offeree

Termination of Offer: Irrevocable Offers

A

if offeree reasonably and detrimentally relies on offer in a foreseeable manner
–> offer may become irrevocable

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23
Q

Contract Formation: Offer

If offeree does not learn of offeror’s death/mental incapacity and sends what he believes to be an acceptance, WHAT RESULT?

Termination of Offer

A

offer is TERMINATED, even if offeree does not learn of offeror’s death until after the offeree has sent what he believes is an acceptance.

  • EXCEPTION: offers for option Ks do not terminate b/c consideration was paid to keep offer open
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24
Q

Contract Formation: Acceptance

Terms of acceptance under COMMON LAW:
Mirror Image Rule

Terms of Acceptance

A

any acceptance must EXACTLY MIRROR the offer; it cannot add, omit, or change terms of the offer –>
* when the terms of the initial offer are changed
–> statement is a counteroffer, rather than an acceptance

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25
Q

Contract Formation: Acceptance

COMMON LAW:
Effect of acceptance with ADDITIONAL, OMITTED, or CHANGED terms?

Terms of an Acceptance

A

statement = COUNTEROFFER…NOT an acceptance
–> terminates OG offer and becomes new offer

NOTE: bargaining or requests for information are not counteroffers

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26
Q

Contract Formation: Acceptance

UCC:
Effect of acceptance with ADDITIONAL TERMS when BOTH parties are MERCHANTS

Terms of Acceptance

A

K is formed with additional terms UNLESS :
1. additional terms materially change offer
2. offer expressly limits acceptance to the offer’s terms, or
3. offeror objects within a reasonable time

Under majority rule, a different term is knocked out and replaced with gap fillers!

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27
Q

Contract Formation: Acceptance

UCC:
Effect of acceptance with ADDITIONAL TERMS when EITHER PARTY is NON-MERCHANT

Terms of Acceptance

A

K is formed, but without additional terms.

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28
Q

Contract Formation: Acceptance

COMMON LAW:
Permissible Methods of Acceptance for BILATERAL Ks

A

accepted by:
1. a promise to perform or
2. beginning performance - offeree must make offeror aware of acceptance

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29
Q

Contract Formation: Acceptance

COMMON LAW:
Permissible Methods of Acceptance for UNILATERAL Ks

A

can only be accepted by COMPLETE PERFORMANCE
* notice required upon completion - offeree not required to give notice upon strt of performance, but must notify offeror within a reasonable time upon completion

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30
Q

Contract Formation: Acceptance

Acceptance:
Definition

A

offeree’s clear expression of assent to terms of offor

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31
Q

What does it mean that offeror is the master of the offer?

A

that offeror controls method of acceptance and can dictate manner by which an offer is accepted

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32
Q

Contract Formation: Acceptance

UCC:
Acceptance by Shipment

A

a merchant may accept an offer to buy goods by either:
1. promise to ship goods (usually by written confirmation)
2. promptly shipping goods

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33
Q

Contract Formation: Acceptance

UCC: Acceptance by Shipment
Effect of Shipping Non-Conforming Goods

A
  • if seller ships non-conforming goods WITH an accomodation letter
    –> shipment = counteroffer
  • if seller ships non-conforming goods WITHOUT an accomodation letter
    –> shipment = acceptance AND breach
34
Q

Contract Formation: Acceptance

When is acceptance EFFECTIVE?
(Mailbox-Rule)

A

acceptance = effective upon DISPATCH

35
Q

Contract Formation: Acceptance

Three Limitations on Mail-Box Rule

A
  1. offeror opts out of mailbox rule (i.e., offer stipulates acceptance is not effective until received)
    –> terms of offer control
  2. offeree sends both a rejection & acceptance
    –> first to arrive controls
  3. option Ks –> acceptance effective upon receipt
36
Q

Contract Formation: Acceptance

Effect of Performance where offer requires acceptance by promise

A

offer requiring acceptance by promise may still be accepted by performance if:
1. offeree begins to perform; and
2. offeror knows offeree has begun performance and acquieses

37
Q

Contract Formation: Consideration

Consideration:
Definition

A

transfer of LEGAL VALUE in a BARGAINED-FOR-EXCHANGE

38
Q

Contract Formation: Consideration

Legal Detriment:
Definition

A

LEGAL DETRIMENT generally consists of:
1. promising to do something the party has no prior legal duty to do;
2. performing an action that the party is not otherwise obligated to undertake; OR
3. refraining from or promising to refrain from exercising a legal right which the party is otherwise entitled

39
Q

Contract Formation: Consideration

Consideration: Requirements
(i.e., consideration is present if…)

A
  1. the promissee incurs a legal detriment OR the promisor receives a legal benefit; AND
  2. the promise INDUCES the detriment AND the detriment INDUCES the promise (i.e., a “bargained-for-exchange”
40
Q

Contract Formation: Consideration

What is NOT consideration
(i.e., consideration does not exist if…)

A
  1. gratuitous promises - promises of gifts or conditional gifts w/ no return consideration
  2. past consideration - promise in exchange for something already given or performed
  3. pretenses of consideration - nominal consideration
  4. illusory promises - promises where only one party is bound to perform, leaves performance to discretion of other party
41
Q

Contract Formation: Consideration

Substitutes for Consideration

Consideration Substitutes (Alternative Theories of Enforcement

A

Alternative theories of enforcement for promises that lack consideration include:
1. promissory estoppel
2. quasi-contract (a.k.a. restitution / implied-in-law K)
3. moral obligation + subsequent promise [only in a minority of jdxs]

42
Q

Contract Formation: Consideration

Promissory Estoppel

Consideration Substitutes (Alternative Theories of Enforcement

A

promises that lack ocnsideration may still be enforced if:
1. the promisor should reasonably expect the promise to induce reliance from the promisee
(i.e., promise likely to induce action or forebearnce from promisee)
2. the promise detrimentally relies on that promise (i.e., promise DOES induce action or forebarance to promisee’s detiment) and
3. injustice can be avoided ONLY by enforcement of the promise

43
Q

Contract Formation: Consideration

Quasi-Contract

Consideration Substitutes (Alternative Theories of Enforcement

A

QUASI-K = RESTUTION REMEDY

Ks that lack consideration may nonetheless be enforced to avoid unfair results if:
1. P confers a measurable benefit on D
2. P reasonably expected to get paid;
3. D knowingly accepted the benefit; AND
4. D will be unjustly enriched if P is not compensated

44
Q

Contract Formation: Consideration

Pre-Existing Legal Duty Rule

A

promise to do something that you are already legally obligated to do (by prior K or some other legal reason) does NOT constitute consideration

only applicable under COMMON LAW; NOT UCC!

note: modern trend = allow modification if it is fair and due to circumstances unanticipated when K was made

45
Q

Contract Formation: Consideration

Exceptions to Pre-Exisiting Legal Duty Rule

A

EXCEPTIONS = CLUSTER:
1. C - Changing the duty on one side;
2. L - Lawsuit settlement or release (there is consideration for the settlement of a valid claim, or a claim for which there is a good faith belief for validity),;
3. U - Unforeseen difficulties that would excuse performance (impracticability),
4. S - Sale of goods under the UCC;
5. T - Time-barred debt (written promise to pay a debt barred by the statute of limitations);
6. E - Extra person involved; and
7. R - Release of pre-existing debts.

46
Q

Contract Formation: Consideration

COMMON LAW: Modification of Ks

A

contract modificatiosn MUST be supported by new consideration (see pre-existing duty rule)

47
Q

Defense to Contract Formation

Defense to K Formation:
Making Mistakes IIS DUM

A

Making Mistakes IIS DUM
* Making = Misrepresentation
* Mistakes = Mistake
* I = Incapacity
* I = Illegality
* S = Statute of Frauds
* D = Duress
* U = Unconscionability
* M = Misunderstanding

48
Q

Defense to Contract Formation

Misrepresentation (Fraud)
(Elements for Establishing Defense and Effect of Defense)

A

To assert this defense, party must show:
1. there is a MISREPRESENTAITON of a PRESENT FACT (not opinion);
2. that is MATERIAL or FRAUDULENT; and
3. that is made under circumstance in which it is REASONABLE to rely on the representation.

EFFECT:
* K is voidable if party detrimentally relies on the misrepresenation

misreprentation = statement at the time of contracting that is NOT TRUE
can be made intentionally (fraudulent) or accidentally

49
Q

Defense to Contract Formation

Mistake Defenses:
Two Types of Mistakes

A
  1. Mutual Mistake
  2. Unilateral Mistake
50
Q

Defense to Contract Formation

Mutual Mistake

A

MUTUAL MISTAKE
* both parties are mistaken as to basic assumption on which agreement was made

K is voidable by adversely affected party if:
1. there is a mistake of fact, existing at the time the deal is made
2. the mistake relates to a basic assumption of the K
3. the mistake has a material impact on the deal; and
4. adversely affected party did NOT assume risk of mistake

party assumes risk when:
(1) he is aware at the time K is made that he only has limited knowledge re: facts to which mistake relates but treats limited knowledge as sufficent; OR
(2) risk is allocated to him by agmt of the parties

51
Q

Unilateral Mistake

A

UNILATERAL MISTAKE
* one party makes a mistake concerning facts of agreement
* generally does NOT prevent K formation

EXCEPTION: mistaken party may VOID K if:
1. mistake is material; and
2. non-mistaken party knew/should have known of mistake

52
Q

Defense to Contract Formation

Types of Capacity Defenses

Capacity Defenses

A
  1. incapacity
  2. duress
  3. undue influense
53
Q

Defenses to Contract Formation

Incapacity

A

INCAPCITY = lack capacity to contract; includes:
* infants (ppl under 18 y/o )
* mentally incompetent people
* intoxicated persons if the other party has reason to know of intoxication

Right to Disaffirm = K may be rendered VOID by person who lacked capacity if such person DISAFFIRMS K

54
Q

Defenses to Contract Formation

Infancy Exceptions
(Ks involving minors may be enforced or otherwise recognzied where…)

A
  1. implied affirmation (ratification) by minor - requires:
    (a) agreement entereed into before capacity;
    (b) capacity has since been gained; and
    (c) beenfits have been retained
  2. K for necessities - infants are legally obligated to pay for “Ks” necessities (food, clothing, shelter)
    (NOTE: liability is based on quasi-K, so infant cannot be sued for breach)
55
Q

Defenses to Contract Formation

Illegality

A

if one or both parties’ purpose, formation, or performance of K is against the law
–> K is VOID and will not be enforced; no remedy for breach

56
Q

Defenses to Contract Formation

Recovery for breach of illegal K:
Expectation Damages)

A

nonbreaching party may recover full value of lost performance if:
* the nonbreaching party was justifiably ignorant of the facts that made the contract illegal
* the nonbreaching party substantially performed and lacked an illegal purpose
* the contract can be easily separated into legal and illegal parts or
* the contract is illegal due to a violation of a licensing requirement designed only to raise revenue.

57
Q

Recovery for breach of illegal K:
Restititution Damages

A

a party to an illegal party may recover reasonable value of benefit conferred on other party if such party :
* was justifiably ignorant of the facts that made the contract illegal
* was less culpable than other party or
* withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct.

58
Q

Defenses to Contract Formation

Statute of Frauds:
General Rule

A

Ks subject to SoF that fail to meet SoF requirements are invalid

An oral K is valid in many instances…HOWEVER, for Ks subject to SoF, they must satisfy SoF to be enforceable.

59
Q

Defenses to Contract Formation

Contracts Within Statute of Frauds

Statute of Frauds

A

MY LEGS:
* M - Ks made in consideration of MARRIAGE
* Y - Ks that cannot be performed within a YEAR
* L - LAND-related Ks (transfers of property interests, including leases for terms greater than one year)
* E - promises made by EXECUTOR to personally answer for debts of decedent’s estate
* G - Ks for GOODS over $500
* S - SURETY Ks - ie, Ks in which one party (surety) promises a second party (obligee) that the surety will answer for the debt of a third party (principal))

60
Q

Defenses to Contract Formation

Two Main Ways to Satisfy SoF

Statute of Frauds

A
  1. by writing
  2. by performance
61
Q

Defenses to Contract Formation

Satisfaction by Writing

Statute of Frauds

A

A writing will satisfy SoF if the writing:
1. is signed by the party to be charged (generally the D)
2. shows that a K was formed; AND
3. includes the requisite terms
a. common law = parties, subject, quantity & price
b. UCC = parties, subject, quantity

62
Q

Defenses to Contract Formation

Satisfaction by Performance
(generally)

Statute of Frauds

A

performance rquired to satisfy SoF depends on type of K involved

63
Q

Defenses to Contract Formation

Satisfaction by Performance:
Service Ks under One-Year

Statute of Frauds

A

only full performance satisfies SoF; part performance does NOT

64
Q

Defenses to Contract Formation

Satisfaction by Performance:
Land-Related Ks

Statute of Frauds

A

part performance by buyer satisfies SoF if buyer has done two of the following three:
1. takes possession of the property;
2. makes payment in full or part; and/or
3. makes substantial improvements to the land

65
Q

Defenses to Contract Formation

4 Main Ways for Satisfaction by Performance:
Sale of Goods for $500 or more

Statute of Frauds

A

writing not required if SWAP:
1. S - specially manufactured goods
2. W - written confirmation b/t merchants
3. A - admission in court
4. P - partial performance

66
Q

Defenses to Contract Formation

Exceptions to SoF for Sale of Goods Ks:
Specially Manufactured Goods

Statute of Frauds: Ks for Sale of Goods for +$500

A

SoF satisfied
1. seller makes a “subsantial beginning” toward manufacture of
2. custom goods that are to be specially made for buyer and
3. are not suitable for sale to others in the ordinary course of seller’s business

67
Q

Defenses to Contract Formation

Exceptions to SoF for Sale of Goods Ks:
Written Confirmation b/t Merchants

Statute of Frauds: Ks for Sale of Goods for +$500

A

SoF is satisfied if:
1. after oral agmt b/t merchants;
2. either party sends a signed, written confirmation of oral K (must be signed by sender); AND
3. written confirmation is received by other merchant to oral agmt
UNLESS party receiving written confirmation gives written notice of objection within 10 days after receitp of written confirmation

68
Q

Defenses to Contract Formation

Exceptions to SoF for Sale of Goods Ks:
Admission in Court

Statute of Frauds: Ks for Sale of Goods for +$500

A

SoF satified if:
* party against whom enforcement is sough admits in his pleading/testimony/otherwise in court that a K for sale was made

NOTE: K is not enforceable beyond quantity of goods admitted

69
Q

Defenses to Contract Formation

Exceptions to SoF for Sale of Goods Ks:
Part Performance

Statute of Frauds: Ks for Sale of Goods for +$500

A

SoF satisfied for:
1. quantity of goods for which payment has been made and accepted **or
2. quantity of goods that have been received and accepted

NOTE: K is not enforceable beyond quantity of goods mentioned in above 2 circumstances

70
Q

Defenses to Contract Formation

Duress

A

K is VOID if:
* party is compelled by phyiscal duress (e.g., threat to inflict physical harm)

K is VOIDABLE by adversely affected party if:
* party’s assent is induced by ab improper threat that left the party with no reasonable alternative but to assent

71
Q

Defenses to Contract Formation

Improper Threat

Duress

A

The following threats are ALWAYS improper:
1. threat to commit crime or tort;
2. threat of criminal prosecution [even when the threatened party actually committed the crime]
3. threat of civil litigation made in bad faith
4. threat that** breaches contractual duty of good faith & fair dealing**

72
Q

Defenses to Contract Formation

Unconscionability

A

K is VOIDABLE if follwing two elements met :
1. procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms) and
2. substantive unconscionability (grossly unfair terms).

TIP: look for absence of meaningful choice by disadvantaged party

73
Q

Defenses to Contract Formation

Misunderstanding

A

MUTUAL MISUNDERSTANDING
there is no contract if:
1. both parties have a different understanding of a material term that is open to at least two reasonable interpretations and
2. neither party has any reason to know of the meaning attached by the other.

74
Q

Contract Content and Meaning: Omitted & Implied Terms

UCC: gap-fillers if “place of delivery” missing

A
  • seller’s place of busines [GENERALLY THIS ONE]
  • seller’s home
  • some other place if parties know goods are there
75
Q

Contract Content and Meaning: Omitted & Implied Terms

UCC: gap-fillers if “time for shipment/delivery” missing

A

reasonable time

76
Q

Contract Content and Meaning: Omitted & Implied Terms

UCC: gap-fillers if “price” missing

A

reasonable price at time for delivery

77
Q

Contract Content and Meaning: Omitted & Implied Terms

UCC: gap-fillers if “time & place for payment” missing

A

time & place buyer is to receive goods

78
Q

Contract Content and Meaning: Interpretation

Order of Priority for Contract Interpretion

A
  1. Express terms
  2. Course of performance - sequence of conduct relevant to understanding current transaction b/t parties if:
  3. Course of dealing - sequence of conduct re: previous transactions b/t parties that establishes common basis of understanding for interpreting their conduct
  4. Trade usage - any practice or method of dealing in the parties’ business or industry that is practiced with enough regularity to justify an expectation it will be practiced in this case
79
Q

Performance, breach, and discharge

COMMON LAW:
Breach

A

when one of the parties fails to substantially perform
–> a breach of contract occurs

TWO KINDS:
1. material breach
2. minor breach

80
Q

Performance, breach, and discharge

COMMON LAW:
Material Breach

A

a breach so serious that it defeats the contract’s purpose or deprives the nonbreaching party of the substantial benefit of its bargain.

UBE Exam (11 decks)

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