Contracts Flashcards
Applicable Law
Article 2 of the Uniform Commercial Code (UCC) governs contracts for the sale of goods. Goods are defined as movable things. Otherwise, common law dictates, unless it’s a mixed contract where the predominant purpose of the contract will determine the appropriate law.
Predominant purpose test
Where a contract includes both goods and the provision of services, the predominance test determines if the UCC or common law governs the contract. Determine the predominant purpose for the contract as a whole and the law governing that area provides the applicable law for the entire contract.
Formation
Contract formation requires (1) an offer, (2) an acceptance, (3) consideration, and (4) there must be no appropriate defenses to formation.
Offer
An offer is a manifestation of intent to contract with clear and certain terms that is communicated to an identified offeree.
Advertisements
Advertisements are typically invitations to deal and not offers to sell.
Exception: Ads containing words of commitment and where the offeree can be identified with specificity can be sufficiently definite to be an offer.
Essential terms
- Quantity
- Time of performance (but can be a missing term supplied by the court as a “reasonable” time
- Identity of the parties
- Price (but UCC provides “reasonable price at the time of delivery” if missing)
- Subject matter
QTIPS
Merchant’s firm offer
An offer is not revocable if it is made by a merchant, in a signed writing, that gives assurances that it will be held open for a period that is stated in the writing (or if no time is stated, a reasonable time not to exceed three months).
Acceptance
Acceptance is the manifestation of assent to the terms of the offer. This can be by words (oral or written) creating an express contract, or by conduct creating an implied-in-fact contract.
Mailbox rule
The mailbox rule provides that an acceptance is effective upon proper dispatch.
Proper dispatch requires that the offeree no longer has control of possession of the acceptance, such as with a properly mailed letter.
Mailbox rule exceptions
- Where the offer itself provides otherwise, the terms of the offer control (offeror is the master of the offer)
- Option contracts are effective upon receipt
- If both acceptance and rejection are sent, the rule depends on which was dispatched first.
- If rejection dispatched first, the acceptance will only become effective if received first.
- If acceptance dispatched first, it is effective on dispatch in accordance with normal rule
Bilateral contracts
The start of performance manifests acceptance, where the contract may not be revoked.
Unilateral contract
A unilateral contract is a contract where a party states a requirement without an identified offeree. The start of performance renders a unilateral contract irrevocable, where acceptance exists only when performance is complete. If beginning performance, an offeree must inform the offeror of completion within a reasonable time of completion of performance.
Acceptance of a unilateral k
A unilateral contract exchanges the offeror’s promise for the offeree’s actual performance of the requested act.
Retraction of a unilateral offer
A unilateral offer may be retracted either by lapse of a reasonable time or earlier by effective revocation.
Revocation
A revocation is the retraction of an offer by the offeror and is only valid if communicated to the offeree before acceptance.
Counteroffer
A counteroffer is a response made by the offeree to the offeror that contains the same subject matter as the original offer but differs in terms. It operates as a rejection of the original offer as well as a new offer.
Consideration
Consideration is a bargained-for exchange of something of legal value. Consideration can also include enjoining someone from doing something they are legally allowed to do. Courts will generally not question the adequacy of consideration – “a mere peppercorn” may suffice.
Illusory promise
An illusory promise is one not supported by consideration and is thus not enforceable. The promisor appears to promise something, but in fact does not commit to do anything at all.
Implied-in-fact contract
A contract based on a tacit promise, inferred when conduct creates a contract, a benefit was received that could have been refused, and it would be fair to presume payment was expected.
Requirements contract
In requirements contracts, the parties agree that the seller will be the exclusive source of all the buyer’s requirements for a particular item for a specified period of time.
Option contracts
An offer is not revocable if the offeree gives consideration for a promise by the offeror to refrain from revoking an offer for either a stated period of time, or a reasonable time if no time is specified.
Option contracts are an exception to the mailbox rule and are accepted upon receipt, not mailing.
Output contract
In an output contract, the buyer agrees to buy all of the seller’s output of a particular item for a specified period of time.
Inadequate consideration
A court will generally not inquire into the adequacy of consideration, but some types of promises do not provide adequate consideration, such as:
Gifts, sham or nominal consideration, past consideration, or a pre-existing duty.
Mutual mistake
A contract is voidable when both parties are mistaken as to a basic assumption on the contract which is material to the contract and the party claiming mistake did not obligate to bear the risk of such a mistake.
Misrepresentation
Defendant makes a misrepresentation of material face for the purpose of inducing the plaintiff to rely on the misrepresentation to their detriment. Nominal damages are not available.
Unilateral mistake
A mistake by one party that is unknown to the other party, concerning a basic assumption that is material to the contract. A unilateral mistake may be a defense to formation if one party knew or had reason to believe that the other party was mistaken.
Conditions
A condition makes performance obligatory only when the condition occurs. Concurrent conditions occur simultaneously, but each functions as a condition precedent to the other.
Satisfaction conditions
Can be viewed subjectively, but in good faith. Even if objectively satisfactory by reasonable persons, the client decides his own subjective satisfication.
Breach
A contract breach occurs when a party fails to perform when (1) conditions precedent are satisfied, (2) time to performs arrives, and (3) performance is not discharged.
Minor or material breach
If a party does not receive the substantial benefit of their bargain, the breach is material and they are no longer obligated to continue performance under the terms of the contract. The non-breaching party will have an immediate right to all remedies available.
A breach of contract is minor if a party gains the substantial benefit of their bargain despite defective performance. A minor breach does not relieve the aggrieved party of performance under the contract; it merely gives them a right to damages for the minor breach.
Time is of the essence
Contract performance is required within a reasonable time as specified in the contract. However, if the contract contains a “time is of the essence” clause, failure to perform by that date results in a material breach of the contract.
Statute of frauds
The following contracts are not valid unless they are in writing: marriage, a contract that cannot be performed within a year, land sale or leases for over a year in length, executor guarantees to pay, contracts for goods valued over $500, and suretyships. (MYLEGS)
Writings must be signed by the party to be charged, reasonably identify the subject matter, indicate there is a contract, and state the essential terms.
When there is part performance which unequivocally indicates acceptance, a party will be estopped from claiming there was no contract based on a lack of writing.
It can be a number of writings, no need for only one signed document. Email messages suffice, including signature or not.
