Contracts Flashcards
General Applicable Law
A contract for services is governed by common law. A contract for the sale of goods is governed by Article 2 of the UCC. “Goods” are all things moveable at the time they are identified to the contract.
Requirements to Form a Contract
To form an enforceable contract, there must be mutual assent (offer + acceptance), consideration, and the absence of any formation or enforcement defenses (i.e. SOF).
Offer
An offer is the manifestation of a present intent to contract demonstrated by a promise, undertaking, or commitment. It must be communicated to an identified offeree and contain definite and certain terms.
Acceptance
Acceptance is the manifestation of assent to terms of the offer in the manner prescribed or authorized by the offer.
Consideration
Consideration is a bargained for change that has legal value. Legal value is usually considered to be either a benefit to the promisor or a detriment to the promisee. Most courts focus on the detriment element. The promise must induce the detriment. Therefore, past consideration (preexisting duty rule) is not consideration to a new promise. There is no legal value when one party gives a gift to another.
Formation or Enforcement Defenses (Mistake)
Mistake
- Unilateral mistake—contract is voidable if nonmistaken party knew or should have known of mistake
- Mutual mistake—contract is voidable by adversely affected party if:
- Mistake concerns basic assumption on which contract was made;
- Mistake has material effect; and
- Party seeking avoidance did not assume risk
- Ambiguous terms—one party aware of ambiguity = contract; neither party or both parties aware of ambiguity = no contract
Formation or Enforcement Defenses (other than Mistake)
- Fraud and misrepresentation (includes concealment and nondisclosure)
- Illegality of consideration or subject matter
- Incapacity—infancy, mental incapacity, intoxication, duress, and undue influence
- Statute of Fraud—certain contracts must be in writing, signed by the party to be charged (“MY LEGS” )
Statute of Frauds
- ertain contracts must be in writing, signed by the party to be charged (“MY LEGS” )
- Marriage—when marriage is consideration for promise (e.g., “If you marry my son, I will buy you a car”)
- Year—promises that cannot be performed within one year from date of contract
- Land—promises creating interests in land (e.g., leases, easements, fixtures, mineral rights, mortgages)
- Executors and administrators—promises to pay estate debts from own funds
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Goods—contracts for sale of goods for a price of $500 or more
- Exceptions—specially manufactured goods, goods accepted or paid for
- Suretyship—promise to answer for debt of another
Expectation Damages
- “The normal measure of damages for breach of contract is expectation damages, which aim to give the nonbreaching party the benefit of his bargain.”
- Expectation damages must be foreseeable and proven with reasonable certainty. This is similar to the UCC rule, which puts the aggrieved party “in as good a position as if the other party had fully performed.” A buyer may recover the difference between the cost to “cover” by purchasing in good faith substitute goods and the contract price.
Terms Required in the Offer
An offer contains terms that are definite and certain and is communicated to the offeree.
Terminating the Offer
- Lapse of time—must accept within specified time period or, if none, within reasonable time
- Revocation—words or conduct of the offeror terminating the offer
- Revocation is effective when received by offeree
- Irrevocable offer:
- a) Merchant’s firm offer under UCC
- b) Option contract—offeree gave consideration to hold open offer
- c) Detrimental reliance
- Rejection—words or conduct of the offeree rejecting the offer
- Rejection effective when received by offeror
- Counteroffer acts as rejection
- Termination by operation of law when:
- Destruction of subject matter of the contract
- Supervening illegality of subject matter of contract
- Death or insanity of either party
