Contracts Flashcards
What is required for valid consideration?
(1) a bargained-for exchange between the parties; and
(2) legal value - that which is bargained for must be considered of legal value
i.e. it must constitute a benefit for the promisor or a detriment to the promisee
e.g. promise to pay and a promise to sell
‘I will attempt to get the money together’ = NOT a promise
No need for equivalency of exchange
When is consideration not valid?
Past consideration
Moral consideration
Illusory promise
Token consideration (devoid of value)
Sham cosnideration (insignificant sum)
Gross inadequacy of exchange that so shocks the conscience
What is a manifestation of assent?
It is an acceptance.
Is a manifestation of assent/acceptance sufficient to conclude an enforceable contract? Evebn if the parties intend to memorialize their agreement in a contract/writing that isn’t prepared yet?
Yes, parties’ agreement on essential terms constitutes the manifestation of mutual asset sufficient to create an enforceable contract.
What is the Parol Evidence Rule?
The PE rule bars parties to a written contract from presenting PRIOR ‘extrinsic’ evidence (written or oral) or contemporaneous oral expressions of terms in a contract that would contradict, modify or vary the terms of a written agreement, when that written agreement is considered complete and finalized.
IF the evidence is subsequent - such as modifications of a contract - that is VALID! PE = only PRIOR evidence.
How does Article 2 apply the PE rule?
Art 2 generally follows the same rules as common law. A party can’t contradict a written contract but may add CONSISTENT ADDITIONAL TERMS, unless:
1) there is a merger clause, or
2) the courts frind from all the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Art 2 also provides that a written contract’s terms may be explained or supplements by evidence of:
- course of performance;
- course of dealing; and
- usage of trade
REGARDLESS of whether or not the writing appears to be ambiguous.
When assessing whether the PE rule applies, what is the first thing to ascertain? Why? Define this!
Whether the contract is partially or completely integrated.
Why? If only partially integrated, the parol evidence rule does not apply (extrinsic evidence is admissible ONLY for proving consistent, admissible terms - the writing CANNOT be contradicted but CAN be supplemented).
Completely integrated contract = intended to be the complete and exclusive expression of all terms in the agreement (writing CANNOT be contradicted OR supplemented).
Partially integrated = anything less than completely integrated, e.g. contains only some, not all, of the terms in the agreement.
What are the exceptions to the PE rule? i.e. when can it be used for an integrated contract?
- aid in interpreting an existing term
- show that a writing is/is not an integration
- establish that an integration is complete or partial
- establish subsequent agreements or modifications
- show that the contract terms were the product of illegality, fraud, duress or mistake
- show that a written agreement is contingent on a condition precedent
What is a completely integrated agreement
It is an unambiguous written agreement that leaves no doubt that the parties intended it to be the final contract, and expresses the parties’ full and exclusive agreement on a matter.
What is the Four Corners Rule?
If a written agreement, on its face, appears complete, no outside evidence may be used to challenge it. If there is evidence that exists outside of the four corners of the agreement, it is inadmissible if they contradict the terms of the written contract.
Who dictates how an offer may be accepted?
The offeror - the offeror is the master of his offer, which means he may prescribe the method by which it may be accepted.
What is an executory accord? What does it require to be valid?
When parties agree to allow for one of the parties who has a duty to perform to promise a different, substitute performance from what they originally promised, which would discharge their existing duty.
It requires an affirmative, mutual agreement between the parties to allow one to give a different performance in substitution for an existing duty.
When a creditor offers to discharge an existing debt for less than the amount owed if the debtor pays sooner, is this supported by consideration?
YES! The creditor benefits from a faster return payment, although he sacrifices some % of the debt owed, and the debtor discharges his debt for less, although it is due sooner than originally agreed.
What is the certainty rule for damages?
A plaintiff must prove that the losses suffered were not just speculative but were certain.
When can consistent additional terms be added to a Sale of Goods even when there is a completely integrated agreement?
Fully integrated contracts can be explained or supplemented by evidence of ‘consistent additional terms’ which can be based on: PDT
1.course of performance (way parties have conducted themselves in performing the particular contract at hand)
2. course of dealing (pattern of performance between the parties to the contract with respect to past contracts)
3. trade usage (any practice regularly observed in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question - must be reconciled with the express terms of the contract, i.e. it explains terms of contract).
This evidence can be added regardless of whether/not the writing appears to be ambiguous.
What is the approach to the parol evidence rule under the UCC (sale of goods)?
Contract terms that are intended by the parties to be the final expression of their agreement can’t be contradicted by evidence of any previous agreement or contemporaneous oral agreement but may be explained/supplemented by evidence of ‘consistent additional terms’.
What is required for modification of a common law contract?
Mutual assent and consideration.
Under the UCC, what is sufficient to show agreement between parties?
Appropriate conduct between the parties may be sufficient to show agreement to a contract for sale of goods - e.g. even if an exchange of correspondence between the parties makes the exact moment of contract formation indeterminate, the proposal of identical terms demonstrates a condition was met and that the parties’ conduct manifested agreement.
Do UCC contracts fall under the ‘mirror image’ rule?
No, this is a common law rule that requires the acceptance to match the offer.
UCC relaxes this rule to allow contracts to be formed even where the acceptance differs from the offer.
What is a crossing offer? Is it valid under common law?
When identical offers are sent by 2 parties to one another.
The offeree must know of the offer in order to accept it, and
this is true whether the offer is for a bilateral or unilateral
contract. Thus, if A sends B an offer and B sends A an offer
unaware of A’s offer (such as a crossing offer situation), no
contract is formed, even if the offers contain the same terms.
Is a crossing offer valid under the UCC?
No, although under the UCC unclear communications can create a manifestation of agreement, a cross-offer functions as a rejection followed by a counter-offer.
What is adequate assurances?
A party to a contract with reasonable grounds to worry that the other party might not perform can request adequate assurances of performance.
Party can suspend performance pending receipt of that assurance.
What happens when a party fails to provide an adequate assurance? What happens when they do provide them?
A failure to provide adequate assurance within a reasonable time (not to exceed 30 days) can be treated as a repudiation which may give rise to a right to terminate the contract.
Once adequate assurances are provided, the other party is bound to perform under the contract.
Can a merchant’s firm offer stay open for longer than 3 months?
If a merchant-offeror states that an offer will stay open for a period beyond the UCC’s 3-month limit on irrevocability, they will be bound only for 3 months.
Remember that the 3-month limitation applies only to offers not supported by consideration. Watch for an offer
that looks like a merchant’s firm offer but includes some consideration. This is an option contract, and the offer can
be held open for as long as the parties specify.
What is a Merchant’s Firm Offer? Under the UCC
An offer can become irrevocable if:
1. made by a merchant
2. in signed writing
3. and gives explicit assurances that the offer will be held open
A firm offer will only last for the period of time stated in the offer. If no time period is stated, the offer will stay open for a maximum of three months.
Offer becomes irrevocable EVEN if no consideration given by the offeree.
If consideration is given = option contract and stays irrevocable as long as agreed.
What happens if a UCC Firm oFFer contains a time period? What is the time limit?
If a UCC Firm Offer states a time period for how long the offer will remain open, that time period governs how long the offer remains irrevocable.
BUT a firm offer cannot be made irrevocable for more than 3 months, even if contracted to remain open for longer. SO if no consideration is given for offer to remain open, after 3 months, the offer can be revoked at any time by the offeror BUT the offeree can accept whenever if not revoked by offeror.
In a UCC firm offer, can the offeree accept after 3 months are up and no consideration has been given for the offer to stay open?
Yes! After 3 months the offer has become revocable which just means that the offeror can revoke it (as opposed to before when he couldn’t and it had to stay open). But if the offeror doesn’t actually revoke the offer, the offeree is still free to accept it whenever they wish. It is an open, un-revoked, offer.
IF the offeree gave additional consideration after the 90 days/3months is up, the offer could remain irrevocable.
If both parties are merchants, can a firm offer under the UCC be made orally?
NO! A firm offer must be made in a signed writing that assures that the offer will be held open.
What is the general rule on revocation? What are the exceptions?
An ordinary offer is revocable at the will of the offeror.
Exceptions:
1. Standard option contract (common law)
2. Firm offer under the UCC
3. Temporary irrevocability as a result of the offeree’s part performance or detrimental reliance.
When is specific performance of a contractual obligation granted?
When an award of monetary damages is inadequate - i.e. where damages would not be a just or reasonable substitute for performance of the promise, or where the calculation of adequate damages would be impracticable.
SO, SP = granted when:
(a) there is a valid contract
(b) there is an inadequamte remedy at law
(c) the enforcement of the perfromance is feasible; and
(d) no defenses apply.
When is a legal remedy for damages normally inadequate?
The damages are unique, difficult to calculate, impossible to collect, or the breaching party is insolvent.
Which kind of assignments are irrevocable and revocable?
Assignments for value = (1) done for consideration or (2) taken as security for or payment of a preexisting debt. They CANNOT be revoked.
Gratuitous assignment = assignment not for value (e.g. gift) IS revocable - the assignor retains the power to revoke the assignment unless and until the assignee obtains performance from the obligor.
What happens when a performance is subject to an express condition? When does it become due?
A performance that is subject to an express condition cannot become due unless the condition occurs or its non-occurence is excused.
What happens if a contract is contingent upon an express condition that the buyer do something but the buyer doesn’t even attempt to carry out the thing?
The duty of good faith is implied in every contract, imposes an obligation on the buyer to make reasonable efforts to carry out what he needed to do under the condition.
Normally the non-occurence of an express condition to a contract would excuse the buyer from having to perform. But here the buyer did not act in good faith by attempting to do what he needed to do in order for the contract to be valid. SO the seller can sue the buyer for breach.
How are damages to an injured buyer in a contract for the sale of real estate, usually measured? (when SP not available and why might it not be available?)
Expectancy damages: the difference between the contract price and the market value of the property at the time that the buyer learned of the breach, plus any incidental or consequential damages.
Typically a breach of contract for real estate would entitle the buyer to soecific performance because land is considered unique. BUT note, specific performance is NOT available when the land in question has been sold to someone else.
How are expectancy damages calculated?
(a) the loss in value to the non-breaching party, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that the non-breaching party has avoided by not having to perform.
Can a promise be supported by consideration?
Yes, if two things are true:
1. The promisee is giving up something of value or circumscribes his liberty in some way to suffer a legal detriment; and
2. the promisor makes his promise as part of a bargained-for exchange for the promisee’s legal detriment.
Legal detriment = important where not clear that one party has really given up anything in the bargain
Bargain element = dispositive in situations that do not involve business dealings, e.g. a promise to make a gift.
Do courts consider the adequacy of consideration?
No, courts do not consider the adequacy of consideration as long as the consideration was bargained-for, ‘even a peppercorn will suffice’ for consideration.
What matters for finding consideration is the existence of an exchange, even if the values exchanged are unequal.
What happens to a contract that violates a state/regulatory statute?
It may be declared unenforceable on the grounds of public policy - i.e. if enforcing it is against public policy. BUT if declaring said contract unenforceable would be contrary to the public policy of protecting the policy owner and the policy owner is within the class of persons that the policy is intended to protect, the court will not declare the contract unenforceable.
Is specific performances used for personal service contracts?
Specific performance is generally awarded for breach of contract where monetary damages would be inadequate or impracticable.
BUT a court will not issue an affirmative injunction compelling a person to specifically perform a personal service contract (although a court might issue a negative injunction in certain circumstances.
When does a court impute a quasi-contract?
To avoid unjust enrichment - i.e. one party receiving a benefit without paying for it. The remedy will be for the party that has benefited to pay the value of the benefit conferred to the conferring party.
What happens when a buyer sends non-conforming goods but includes a note stating that they are an accommodation? What is the general rule here?
UCC - an order/other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt shipment of conforming OR non-conforming goods, OR a prompt promise to ship.
IF the seller seasonably notifies the buyer that the shipment of non-conforming goods is being offered only as an accommodation to the buyer, the shipment of those non-conforming goods will NOT result in a breach - it is a counter-offer (to sell the goods shipped as they are) which the buyer can then choose to accept/reject.
If buyer accepts accommodation - contract of goods is formed.
If buyer rejects - contract is prevented from coming into existence at all, and the buyer may not sue the seller for breach.
What happens when a Seller sends non-conforming goods?
UCC - an order/other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt shipment of conforming OR non-conforming goods, OR a prompt promise to ship.
By sending non-confirming goods, a seller is accepting the offer and breaching the contract at the same time. The buyer can then either accept the non-conforming goods or reject them. If the buyer rejects the non-conforming goods, he can then sue for breach.
When does a revocation terminate an offeree’s power of acceptance?
IF it is communicated to the offereree BEFORE they accept.
What is the mailbox rule?
The mailbox rule renders a properly mailed acceptance effective upon dispatch, not the receipt. So this means that when a letter is deposited in the mail, the acceptance is effective, and the offer can no longer be revoked.
What happens if an offer is ambiguous about if they invite acceptance through a return promise or through performance? (commonly occurs where the offer is a request that the goods be shipped)
UCC - an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt shipment of conforming OR non-conforming goods, OR a prompt promise to ship.
What are the 2 exceptions to a contract only conferring rights and duties imposed on the parties to the contract, not anyone else?
- where the original contract confers rights and duties on a ‘third party beneficiary’; and
- when a party seeks to transfer rights and duties under a contract to a third party, usually in the form of an assignment of rights or delegation of duties
What is an incidental third party benediticary
Those who may benefit from the contract but that is not the primary purpose of the contract - i.e. an incidental beneficiary
What factors are looked at to determine whether a beneficiary is ‘intended’?
Whether:
1. The beneficiary could have reasonably relied on the fact that a purpose of the contract was to confer a right to him
2. Performance is supposed to run directly from a contracting party to the third party, rather than from the promisor to the promisee and only indirectly benefitting the third party again;
3. If part of the overall objective of the parties to the contract was to benefit the third party.
Is a lifetime contract covered by the Statute of Frauds (under the performance not within one year from date of contract category)?
No! It is capable of performance within a year - a person can die at any time.
What are essential terms in a contract?
No definitive list - depends on the agreement, its context and the subsequent conduct of the parties. There must be enough in the writing to enable the court to enforce the contract.
Examples of essential terms include: identity of the parties,
description of the subject matter, and the terms necessary
to make the contract definite. See other cards for specific contracts (land, sale of goods, employment).
What is actually required by the SoF?
Not a formal written contract. The writing can be a receipt, a letter, a check with details in the memo line, a written offer that was accepted orally.
Statute requires only one or more writings that:
1. reasonably identify the subject matter of the contract
2. indicate that the contract has been made between the parties, and
3. state with reasonable certainty the essential terms
What essential terms must be included in a land sale contract?
Writings evidencing land
sale contracts must contain a description of the land and
the price.
What essential terms must be included in an employment contract?
Writings for employment contracts must state the length
of employment and salary for the services or work perfromed.
What essential terms must be included in a UCC sale of goods contract?
Writings evidencing sales of goods contracts (UCC) must
indicate that a contract has been made and specify the
quantity term
What happens if an essential term is missing from a contract?
As essential term must be agreed upon before the contract can be deemed enforceable. A contract is not enforceable if one or more of the essential terms are left open.
Explain the defense of illegality
If either the consideration or the subject matter of a contract is illegal, this will serve as a defense to enforcement.
Illegal consideration or subject matter renders a contract void and unenforceable. In a close case, a court may sever an illegal clause from the contract rather than striking down the entire contract.
Explain how the effect of illegality depends on timing?
Subject matter/consideration was illegal at the time of the offer - there was no valid offer.
If it became illegal AFTER the offer but before acceptance, the supervening illegality operates to REVOKE the offer.
IF it becomes illegal AFTER a valid contract was formed, the supervening illegality operates to discharge the contract because performance has become impossible.
What about if a contract is illegal solely because a party does not have a required license?
Depends on the reason for the license:
Revenue Raising - license merely to to raise revenue - contract IS enforceable
Protection of the Public - license required to ensure licensee meets minimum requirements to protect public welfare (e.g. license to practice medicine), contract is VOID. SO even if the unlicensed party performs under contract, they cannot collect damages.
What happens when the consideration and the subject matter of a contract is not illegal but the contract has an illegal purpose? (e.g. contract to rent a plane where the renter’s purpose is to smuggle drugs)
Contract is VOIDABLE by party who:
1. did not know of the purpose
2. knew but did not facilitate the purpose AND the purpose does NOT involve ‘serious moral turpitude’.
What is a divisible contract?
Contract is considered ‘divisible’ if:
1. the contract divides each party’s performance into at least 2 parts
2. each party had the same number of parts that they are obligated to perform; and
3. each party’s performance on each part is agreed to be the equivalent of a corresponding part for the other party.
- analysis relies on fairness - courts focus on preventing hardship and forfeiture.
UCC - discourages treatment of contracts for sale of goods as being divisible so = INSTALLMENT contract.
What is a UCC installment contract?
UCC - discourages treatment of contracts for sale of goods as being divisible so = INSTALLMENT contract.
Installment contract = one that provides for the delivery of goods in separate lots to be separately accepted.
Unless the parties have agreed to permit delivery in installments, all goods subject to a contract for sale must be tendered in a single delivery.
What happens if installment deliveries have NOT been agreed upon but the seller delivers only a partial shipment?
The entire contract has been breached and he may not recover on it for that installment, even though the price of that installment could be calculated by pro-rating the contract price.
BUT remember - when goods are accepted = different.
