Contracts Flashcards
1
Q
What is the basic contract formula?
A
K = MA (O+A) + C - D
A contract is formed when there is mutual assent (made up of an offer and acceptance) and consideration, along with an absence of valid defenses.
2
Q
What is a contract?
A
A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty. (it’s a legally-enforceable agreement)
3
Q
What are the different kinds of contracts that parties can have?
A
- Express: Express contracts are formed by language, oral or written.
- Implied: Implied contracts are formed by conduct.
- Quasi-Contracts: Quasi-contracts are NOT contracts.
— This name is given to an agreement when an unenforceable contract results in unjust enrichment.
— Courts permit a plaintiff to bring an action in RESTITUTION to recover the amount of the benefit conferred on the defendant (usually preventing unjust enrichment, but may be based on the detriment suffered by the plaintiff–the reasonable value of the work performed).
4
Q
What is a bilateral contract? How can it be accepted?
A
A bilateral contract consists of the exchange of mutual promises (it’s a promise for a promise).
- Can be accepted in ANY REASONABLE WAY.
5
Q
What is a unilateral contract? How is it made and accepted?
A
A unilateral contract is one in which the offeror requests performance rather than a promise.
- The offeror-promisor promises to pay upon the completion of the requested act by the promisee.
- When the promisee performs the requested act, a contract is formed.
6
Q
What are the two situations in which a unilateral contract can occur?
A
(1) The offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance.
(2) Where there is an offer to the public (EX: a reward offer).
7
Q
What are “goods” under the UCC?
A
Goods are all things movable at the time they are identified as the items to be sold under the contract.
8
Q
What law applies to the sale of goods? What law applies to everything else?
A
The UCC (Art. 2) applies to the sale of goods. Common law applies to all other contracts (EX: services; real estate; intangibles).
9
Q
Who is a “merchant”?
A
A merchant is one who regularly deals in goods of the kind sold OR who holds themselves out as having special knowledge or skills as to the practices or goods involved.
10
Q
Is the UCC or common law used when both goods and services are part of a contract?
A
If a sale involves both goods and services, you will determine which aspect is dominant and apply the law governing that aspect to the whole contract.
- If the contract DIVIDES PAYMENT between goods and services, then Article 2 will apply to the sale portion and the common law will apply to the services portion.
11
Q
What is mutual assent?
A
One party must accept the other’s offer.
12
Q
What is an offer? What does it create?
A
A communication indicating a reasonable expectation of willingness to contract.
- An offer is a manifestation of an intention to be bound.
- Creates a POWER OF ACCEPTANCE in the offeree and a CORRESPONDING LIABILITY on the part of the offeror.
13
Q
What is an acceptance?
A
A manifestation of assent to the terms of the offer.
14
Q
What is consideration?
A
A bargained-for exchange.
15
Q
What does a communication need to create in order to be an offer?
A
The communication must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
- Needs to contain a promise or commitment (not just a mere invitation to enter into communications).
16
Q
What standard is used regarding an offeror’s intent to determine the validity of an offer?
A
How a reasonable person would understand a promise.
- Subjective intent is irrelevant.
- Judged by a reasonable/objective person standard.
17
Q
Are advertisements generally offers?
A
No, they are invitations to deal.
- EXCEPTION: an advertisement (1) contains a promise (2) in which the terms are certain/definite (enough of the essential terms provided so that a contract including them is capable of being enforced) and (3) the offeree is clearly identified (to be considered an offer, a statement must sufficiently identify the offeree or a class to which they belong to justify the inference that the offeror intended to create a power of acceptance).
18
Q
Are price quotations offers?
A
Price quotations are generally not offers, but they can be if given in response to an inquiry that contains a quantity term.
19
Q
What is the basic inquiry regarding whether an offer is sufficiently definite and certain in its terms?
A
Have enough essential terms been provided so that a contract providing them is capable of being enforced?
- Usually: Offeree’s name; offer’s subject matter; price to be paid
20
Q
What information must an offer regarding realty provide in that offer? Will a court provide a price term for realty if it’s needed?
A
Must identify the land and the price terms.
- The land description needs some particularity, but a deed description is not required.
- Most courts will not supply a missing price term for realty.
21
Q
Is it possible to fill in a missing price term? If so, what for?
A
Yes, for the sale of goods. DOES NOT apply under the common law.
- The general rule is that the price is a “reasonable price” at the time of delivery.
22
Q
What is a term that cannot be filled by the UCC?
A
Quantity. Note however that you can have output contracts (how much the seller can produce) and requirements contracts (measured by the buyer’s good faith need).
23
Q
In a requirement contract, what orders does the supplier not need to fulfill?
A
Disproportionate orders (EX: increasing an enormous amount out of nowhere because of new publicity).
24
Q
Under the UCC, can a buyer define its quantity of goods requirements based on the buyer’s needs?
A
Yes.
25
When buyers define their quantity of goods based on the buyer's requirements, are there any restrictions on how much they can increase the enforceable amount of provided goods from the seller?
Yes, a buyer can increase their requirements, but only as long as their increase is in line with their prior demands.
26
In an employment contract, if the duration of the contract is not specified, how is it construed?
If the duration of the employment contract is not specified, then the offer, if accepted, is construed as creating a contract terminable at will by either party.
27
What are the methods of terminating an offer?
- Lapse of Time: The offer may be terminated by the offeree's failure to accept within the time specified by the offer, or, if no deadline was specified, within a REASONABLE period.
--- Could argue that anything over a month is unreasonable. Also pay attention to the type of goods.
- Revocation: An offeror may retract their offer any time before acceptance unless there is an option contract, a Merchant's Firm Offer, Detrimental Reliance, or the beginning of performance under a unilateral contract offer. An offer may be revoked INDIRECTLY if (1) the offeree receives correct information (2) from a reliable source (3) of an offeror's acts indicating revocation (EX: hear from brother-in-law that the motorcycle previously offered has been sold).
--- Revocations are effective upon receipt (no mailbox rule). At common law, this was physical possession.
--- EXCEPTIONS: (1) Option contract (offeree gives consideration for offeror to not revoke the offer for a period of time); (2) Merchant's Firm Offer Rule; (3) Reliance; and (4) starting to perform under a unilateral contract offer (NOTE: mere preparation to perform is not performance).
- Rejection: An offer terminates when the offeree rejects it (EX: conditional acceptance / counteroffer (not mere bargaining though--look for a question mark for bargaining)) (this applies even with unilateral contract offers).
- Death: Death of either party before acceptance occurs will terminate a revocable offer (though it doesn't automatically terminate a contract that's already been formed--goes to the estate of the deceased person).
28
What effect for a written revocation when the recipient for good cause fails to read the revocation?
It does not matter. A revocation is effective when received, regardless of when it's actually read.
29
What is the Merchant's Firm Offer Rule?
When (1) a merchant promises (2) in signed writing (3) to keep their offer open (for a time stated or reasonable time--neither exceeding 3 months) the merchant's offer is irrevocable for the time stated (up to 3 months) or for a reasonable time (up to 90 days / 3 months) if no amount of time is stated.
- No consideration is required for this.
30
In the case of an option contract or a Merchant's Firm Offer, how can the offeree terminate the offer?
An offeree cannot terminate the offer. It stands open until the period ends.
31
When is there a valid option contract?
A valid option contract is in place when the offeree gives consideration for the offeror to not revoke the offer for a period of time.
32
What is an illusory contract?
Consideration is not flowing from both sides. If only one party is bound to perform, the promise is illusory and will not be enforced.
33
How does detrimental reliance relate to revocation?
When (1) the offeror could reasonably expect that (2) the offeree would rely to their detriment on the offer, and (3) the offeree does so rely, then the offer will be held irrevocable as an option contract for a reasonable length of time.
34
Can an offer restrict how an acceptance can be made?
The language of the offer controls the manner acceptance.
35
Can an offeree accept an offer without knowing about the offer (by complying with the offer's terms)?
No. If the offeree complies with terms of an offer without knowing about the offer, this isn't an acceptance of the offer--they need to know about the offer first to form a valid contract.
- EX: Turned in lost dog and saw poster with reward later.
36
How may a bilateral contract be accepted?
A bilateral contract can be accepted in any reasonable manner.
37
How can a unilateral contract be accepted? When is the offeror unable to revoke?
By completing performance. Once the offeree starts performing, the offeror cannot revoke the offer.
38
What is the result of an improper shipment in response to an offer?
It would be both acceptance AND breach.
39
What does sending something (not the thing requested in the offer) as an "accommodation" mean?
This is a counteroffer (not an acceptance and/or breach). The requires that the seller SEASONABLY NOTIFY the buyer that the shipment of non-conforming goods is an accommodation to the buyer.
- EX: Including a note in a shipment that was sent in response to an order that was placed examining the order and that it was sent to accommodate the buyer.
40
What is the general rule about silence regarding acceptance? What is an exception to the general rule?
Silence is not acceptance.
- A reasonable person would need to be able to look at both people and conclude that an offer has been made.
EXCEPTION: Previous custom.
41
What must acceptance of an offer look like at common law?
Mirror Image Rule: At common law, the acceptance must mirror the terms of the offer.
42
What must acceptance of an offer look like under the UCC?
Under UCC Article 2's Battle of the Forms provision, the offeree must make a "seasonable expression of acceptance." The offerer can include additional terms, but they're not part of the contract unless (1) both parties are merchants, (2) the additional terms aren't material changes (terms that would be likely to cause hardship or surprise to the offeror--substantially affecting economic risks or benefits), and (3) the offeror doesn't object within a reasonable time.
- The offeree can include additional terms, but not different terms!
- 2: It's not a material change to add a term that is customary in the industry.
- If there's a material term added, it's a proposal to modify--doesn't go in on its own.
- 3: If the offeror objects, they can keep out that additional term and the contract will still be in place.
- Acceptance NOT effective if the acceptance is expressly made conditional on assent to the additional or different terms.
43
What is a material alteration / material change for purposes of acceptance under the UCC? What is the result if there is a material alteration?
Any material alterations/changes are not included in the contract. A material alteration is any change to an offer that affects money, liability, or remedies for breach of contract.
- If material, it's out. If not, then the rest of the UCC analysis applies.
44
What analysis should be applied when merchant parties come to an oral agreement and then one sends a confirmatory memorandum which contains additional or different terms?
Despite the fact that there is already a contract at the time the memo is sent, the memo is put through the battle of the forms provisions as if it were an acceptance.
- Additional terms are put through the material alteration test.
- Depending on the jurisdiction, different terms are treated either the same as additional terms or knocked out.
45
Under the UCC, if the offeree assents to an offer but adds a new term as a condition to acceptance, what result?
This is a counteroffer.
46
What is the Mailbox Rule? Can it be overridden?
Acceptance is effective when sent (not received). This doesn't apply when the offer is irrevocable (with option contracts, offeree needs to make sure the acceptance is received by the end of the deadline) OR when the offer states that the Mailbox Rule doesn't apply OR if the offeree's rejection arrives before his acceptance arrives and the offeror detrimentally relies on it.
47
What are the elements of consideration in a contract?
The elements necessary for valid consideration are present when there is (1) A bargained-for exchange between the parties; and (2) legal value.
- 2: Courts do not measure the value--it only needs to be valuable to the parties (EX: promises for promises, promises for performance, giving up legal right to do something, etc.).
48
How is past consideration considered for contract purposes?
Past consideration is NOT consideration.
49
What is required to modify a common law contract?
Preexisting Legal Duty Rule: NEW consideration is needed for modification of an existing contract. Performing on what you're already required to do is NOT new consideration.
EXCEPTIONS:
- The promise is to ratify a voidable obligation.
- The preexisting duty is owed to a third person rather than to the promisor.
- There is an honest dispute as to the duty.
- There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the MODERN VIEW, if the modification (1) is fair and equitable (2) in view of circumstances not anticipated when the contract was made [examiners have indicated that they have adopted the modern view, but discuss the traditional view as well].
50
What is required to modify a contract for the sale of goods?
No consideration is needed. Only good faith is needed.
51
Is modification appropriate when there is a partial payment of a debt?
No. There is no new consideration, so it's not a validly enforceable new contract.
- This is done all the time in the real world, but it's actually unenforceable!
52
What is required for Promissory Estoppel to create an enforceable promise in the absence of consideration?
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if: (1) The promisor should reasonably expect to induce action or forbearance, and (2) Such action or forbearance is in fact induced.
- NOTE: this only applies if there is no consideration.
53
What result for contract defenses when a party lacks capacity?
An incapacitated defendant has the right to disaffirm their contract (EX: drunk, minor, etc.). They don't HAVE TO, but they CAN.
54
When a minor comes of age and retains the benefits of a contract after gaining capacity, what effect does this have on the contract?
There is an implied affirmation. There is a reasonable amount of time to disaffirm, but after that, the lack of capacity defense is removed.
55
How do necessaries affect the incapacity defense in contracts?
A minor may disaffirm a contract for necessaries but will be liable in restitution for the reasonable value of benefits received.
- “Necessaries” are items necessary for subsistence, health, or education (including food, shelter, clothing, and medical care).
56
What is duress and how does it affect contracts?
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed. The common type of duress occurs when a party’s assent is procured by an improper threat.
- Usually, taking advantage of another person’s economic needs is not duress. However, withholding something someone wants or needs will constitute economic duress if: (1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and (2) there are no adequate means available to prevent the threatened loss.
- Elements of undue influence are: (1) undue susceptibility to pressure by one party, and (2) excessive pressure by the other party. Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influenced party.
57
What is the ambiguity defense to contracts?
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity: (1) Neither party aware—no contract unless both parties intended the same meaning; (2) Both parties aware—no contract unless both parties intended the same meaning; or (3) One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
58
What is the mistake defense to contracts?
If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party if: (1) The mistake CONCERNS A BASIC ASSUMPTION on which the contract is made (EX: the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); (2) The mistake HAS A MATERIAL EFFECT on the agreed-upon exchange (EX: the cubic zirconia is worth only a hundredth of what a diamond is worth); AND (3) The party seeking avoidance DID NOT ASSUME THE RISK of the mistake.
- Mistake about THE THING makes the contract voidable. Mistake about THE VALUE does not void the contract.
59
When there is a unilateral mistake, is the contract voidable?
If only one of the parties is mistaken about facts relating to the agreement, the mistake will not prevent formation of a contract. But, if the non-mistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party.
- No relief unless it's a palpable/obvious mistake (EX: huge deviation in subcontractor bid from the others).
- When the other party is on notice of the mistake, the parties may reform the contract.
60
What is the unconscionability defense to contracts?
A court may refuse enforcing a contract when it is unconscionable. There must be (1) unfair surprise (a term or terms that is not within the other party’s expectations) and (2) oppressive terms, tested at the time of formation.
61
Are oral contracts enforceable?
Yes, unless their subject matter falls within the statute of frauds.
62
What are the areas covered by the Statute of Frauds?
MYLEGS
Marriage: Contracts in consideration of marriage are subject to the SOF (but not promises to marry--note that encouraging marriage is okay and requires a writing).
Year: Contracts which cannot be completed in one year. Time of actual performance doesn't matter.
- Lifetime contracts don't count--could die within the year.
Land Sales: Transfer of an interest in real property.
Executors: A promise by an executor to pay debts from their own pocket instead of the estate is within the SOF.
Goods for $500+: The sale of goods at or exceeding $500 are subject to the SOF.
Sureties: A promise to answer for or guarantee the debts of another person is subject to the SOF.
63
What is the Equal Dignity Rule?
The authorization to enter into a contract on behalf of someone else must be in writing only if the underlying deal would have been subject to the Statute of Frauds.
64
How do modifications relate to the Statute of Frauds?
Modifications must be in writing ONLY IF the contract AS MODIFIED would fall within the Statute of Frauds.
65
How does the common law treat contract clauses prohibiting the oral modification of contracts? What about under the UCC?
Under common law, clauses prohibiting oral modification are unenforceable. Under Art. 2 of the UCC, these clauses are generally enforceable.
66
What is the Land Sale Exception to the Statute of Frauds?
(1) If there is a lease of one year or less, it can be oral.
(2) A buyer can specifically enforce a seller's oral promise to sell land if the part performance doctrine applies. Part performance of a real estate contract (payment, possession, and improvement--need 2 of 3) allows for an oral contract despite the SOF. A seller can enforce an oral land sale contract only if the seller conveys the property to the buyer.
- Must unequivocally indicate that there is a contract for the sale of land (EX: if payments are in instalments and it looks too much like rent, it won't work).
67
When may part performance provide an exception to the statute of frauds?
When it is for the sale of goods (full performance will work too). Part performance takes a sale of goods contract out of the Statute of Frauds when: (1) the goods have been specially manufactured, or (2) the goods have been either paid for or accepted. If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance.
- It's also one of the 3 options for land sale contracts (remember that in that one you need 2/3).
68
What is the Service Contract exception to the Statute of Frauds?
Full performance (NOT partial performance) of a contract for services satisfies the Statute of Frauds.
69
What is the Judicial Admissions Exception?
This is a Statute of Frauds exception. If an agreement is admitted to under oath, then it's enforceable without the writing.
70
What is the Merchant's Confirmatory Memorandum Rule?
One party can use their own signed writing to satisfy the Statute of Frauds against the other party (within a reasonable time after entering into the oral agreement) if both parties are merchants. The writing must include (1) the agreement and (2) the quantity terms and (3) there must be no objection from the other party within 10 days (even though they have reason to know the memo's contents).
71
What is an "adequate writing" to satisfy the Statute of Frauds?
Common Law: A contract under common law must have (1) all material terms (who and what for what) and (2) the defendant's signature (P's not needed).
UCC: A sale of goods at $500+, it must include (1) a quantity term (quantity being offered must be certain or capable of being made certain) and (2) the defendant's signature (P's not needed).
72
What result if there is no writing for goods exceeding $500+ in value but the goods are either received and accepted or paid for?
If goods are either (1) received and accepted or (2) paid for, the contract is enforceable without a writing.
73
What Statute of Frauds rules apply for the manufacture of specially manufactured goods?
A contract for specially manufactured goods (i.e., goods that are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of his business) are enforceable without a writing if the seller has (1) reasonably indicated that the goods are for the buyer and (2) made a substantial beginning in their manufacture OR committed for their purchase before notice of a repudiation was received.
74
What is the Parol Evidence Rule?
The PER excludes evidence of prior or contemporaneous agreements if they contradict the final writing.
- The final writing supersedes all prior oral or written agreements/evidence.
- Doesn't apply to oral contracts.
75
What are the exceptions to the Parol Evidence Rule?
- Parol evidence is allowed a partial integration into the writing (not a complete integration). A party can use parol evidence to add detail to the agreement, but not contradict or explain clear language.
- Parties can bring in parol evidence to establish a defense to formation.
- Parties can bring in parol evidence to explain a vague term.
- Parties can bring in parol evidence to correct a clerical error.
76
What is Course of Performance in contract law? How can it be used?
It's how the parties have performed under former installments of the current deal. Can be used as evidence to explain terms of the current contract.
77
What is Course of Dealing in contract law? How can it be used?
Course of Dealing is the parties' conduct in prior contracts. It can be used to help define terms in the current contract.
- Less important than Course of Performance.
78
What is Trade Usage in contract law? How can it be used?
This is industry norms that the parties are aware of.
- Less useful than Course of Performance and Course of Dealing and (of course) other evidence that's indicative of the actual meaning of the contract.
79
What is an 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 (facts, not opinions).
80
What is an Implied Warranty of Merchantability?
The goods are fit for their ordinary, foreseeable purpose.
- With a merchant seller who is regularly selling that type of goods, then it's automatically implied that their goods come under the Implied Warranty of Merchantability.
81
What is the Implied Warranty of Fitness for a Particular Purpose?
This is a guarantee that an item is suitable for a specific use or need.
This warranty will arise when (1) the Buyer comes in with a special purpose; (2) the Seller knows of the special purpose and that the buyer is relying on seller's expertise; and (3) the Seller picks out goods fit for the buyer's special purpose.
- NOTE: Seller doesn't need to be a merchant
82
What sorts of warranties can a seller of goods disclaim?
The seller can disclaim implied warranties, but not express warranties.
83
What are the special words that allow a seller to disclaim implied warranties? How else can they disclaim these warranties?
"As is" and "with all faults." Can also make a conspicuous disclaimer (a reasonable person would notice it).
84
Can a seller limit a buyer's remedy for breaches of warranty?
Yes. In damages clauses, a seller can limit a buyer's remedy for the breach of any warranty. A seller can limit the buyer's remedy for breach of an express warranty so long as the limit is not unconscionable.
- Cannot limit personal injury recovery--prima facie unconscionable.
85
Who bears the risk of loss in a contract for the sale of goods?
(1) What does the contract say? That controls.
(2) Did anyone breach the contract? They bear the risk, even if the breach doesn't relate to the damage.
(3) If there's a shipment by a common carrier, the risk shifts to the buyer (from the seller) when the seller completes its delivery obligations (NOT when delivery actually occurs) unless the buyer has the right to refuse shipment. Two options of delivery obligation types:
- Shipping Contract: Seller delivers goods to a common carrier, makes reasonable arrangements for delivery, and notifies the buyer (then risk of loss passes to buyer). SHIPPING CONTRACT IS PRESUMED UNLESS THE CONTRACT SAYS OTHERWISE.
- Destination Contract: Seller must deliver the goods to the buyer's location (then risk of loss passes to buyer).
(3) If there's no common carrier, then if there's a MERCHANT SELLER, they bear the risk of loss until the buyer receives possession of the goods.
- Non-merchant sellers pass the risk of loss once they tender (make available--telling them where the goods are and how to get them) the goods to the buyer.
86
What does FOB mean with a contract?
FOB stands for “free on board.” The letters FOB are always followed by a location (for example, a city name), and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These contracts can be either shipment contracts or destination contracts, depending on the location named.
87
What is performance at common law?
Substantial performance is enough. A party cannot commit a material breach. Simply needs to make sure the parties are meeting the essential purpose of the contract.
88
What is performance under the UCC?
Perfect Tender Rule: The seller's delivery must be perfect (must deliver perfect goods at the right place at the right time). If it's not, the buyer can reject the goods.
89
What happens when a seller delivers non-conforming tender to a buyer in response to the buyer’s offer?
It is simultaneously an acceptance and a breach of contract.
90
What is an Installment Sales Contract?
Requires the delivery of goods in separate installments over a specified period.
91
What rights does a buyer have for inspecting goods?
The buyer has a right to inspect the goods (within a reasonable time) before they pay unless the contract provides for payment C.O.D. or otherwise indicates that the buyer has promised to pay without inspecting the goods.
92
Can a seller refuse payment by check?
Yes, but this gives the buyer an additional period in which to produce the money needed for the goods.
93
What happens if an express condition is not satisfied by one of the parties?
If an express condition is not satisfied, this will grant an excuse to the other party. Conditions are limit obligations created by contract language.
- There is no substantial performance rule for express conditions--strict compliance is needed.
- Note that express conditions do not create obligations--one party cannot sue another if the express condition isn't met.
94
How are satisfaction contracts judged?
Satisfaction is measured by a reasonable person standard (unless the contract deals with art or personal taste).
- These contracts have language like: "performed to my satisfaction."
95
What is an Express Condition Precedent?
An event that must occur before performance is due.
96
What is a Condition Subsequent?
Events after performance that could terminate the duty to pay.
97
What can excuse a condition precedent or subseqent?
Conditions may be excused by the later action or inaction of the person protected by the condition.
- Look at who's protected by the condition and see if they operated in good faith regarding the condition.
98
What is a Waiver of Condition? Can the waiver be retracted?
Voluntarily giving up a condition's protection (waiving a condition).
- If the other party doesn't detrimentally rely upon that waiver, the first party may retract it.
99
What is Anticipatory Repudiation? What is Retraction?
Anticipatory repudiation occurs where a promisor, prior to the performance time, UNEQUIVOCALLY indicates that he cannot or will not timely perform, allowing the non-repudiator the option of suspending performance and waiting to sue until the performance date, or to sue immediately.
- It's an early statement of non-performance. Provides an excuse to suspend one's own performance and gives immediate claims for breach damages.
- Retraction: A repudiation can be removed by the repudiator if not relied upon by the other party.
100
When a party is unsure about the other party's performance in a contract, what action can they take?
Under Article 2, a party with any reasonable grounds for being insecure about the other party's performance may, in writing, request adequate assurance that the other party will perform in accordance with the contract. If this is done and the other party does not respond with adequate assurances, then the party requesting the assurances can treat the lack of response as an anticipatory repudiation. This allows the innocent party to be excused from her performance obligations.
NOTE: Cannot use adequate assurances to rewrite the contract (EX: assurances that will pay in cash instead of credit).
101
What is a Rescission? What is required for a rescission to be effective?
A Rescission is the parties' mutual agreement to cancel the contract. For a rescission to be effective, each party must have some performance remaining.
102
What is a modification agreement?
Modification agreements replace the existing contract with a new one immediately.
103
What are Accord and Satisfaction in a contract?
An Accord is an agreement to accept a different performance. The original duty is suspended by the accord because the parties have agreed to do something different--not excused until performance though.
Satisfaction is the performance of the accord agreement.
- New consideration is needed for an Accord (EX: getting the contract done for more money, and in return, it's at an earlier date).
- Satisfaction is showing that the Accord has been satisfied before there's an excuse of the old obligation (different from modification, which provides for immediate replacement of duties/obligations!).
- The non-breaching party can go after the original or new obligation.
104
What is the difference between Modification and Accord and Satisfaction regarding debts/obligations?
Modification: Debt excused immediately.
Accord and Satisfaction: Debt excused later (suspends performance under the original agreement).
- If... then...
105
What is Novation in contracts? What about a Delegation?
A Novation is a mutual agreement to replace an existing party with a new one.
- In this situation, the original party's obligation is excused.
A Delegation is when one party finds a replacement party to perform (a transfer of work).
- Here, the original party's obligations are not excused.
106
What is Impossibility/Impracticability in contracts?
Impossibility is an excuse for one's performance obligation. It arises when there is a later unforeseen event that makes one's performance impossible (EX: later law makes performance illegal).
- Needs to be extreme and unreasonable to perform.
- NOTE: Objective impossibility (no one could have performed) discharges obligations, not subjective impossibility (the defendant could not perform).
107
How can death or incapacity affect a contract?
Death or incapacity of an ESSENTIAL person to the contract excuses performance.
108
What effect does the destruction of a contract's subject matter have on a contract?
Destruction of a contract's subject matter excuses performance.
- Under impossibility.
109
How does an increase in cost of performance affect excuses for a contract?
A mere increase in the cost of performance does not equate to an excuse.
110
How does Frustration of Purpose affect contract obligations?
When (1) both parties understood the central purpose of the contract and (2) that essential purpose is undermined (3) by an unforeseeable event, then performance is excused.
111
When does a breach occur? What must the non-breaching party show to be excused?
When there is a failure to perform an absolute duty. To be excused, the non-breaching party must show that they are willing/able to perform but for the breaching party's failure to perform.
112
What equates to a breach under the common law?
If the other party has substantially performed, the non-breaching party must perform and then pursue their remedies.
113
When does a Material Breach occur?
A Material Breach occurs in the absence of substantial performance, or when there is no performance at all. The non-breaching party in this situation doesn't receive the substantial benefit of the bargain. The promisee may treat the contract as ended, and any counter-performance is discharged, and the promisee may immediately seek remedies.
114
What do courts look to in order to determine substantial performance?
- Benefit received by non-breaching party.
- Adequacy of damages.
- Extent of performance (part performance) by breaching party.
- Hardship to breaching party (if it's overly oppressive, the court will consider there to be substantial performance).
- Reason for breach (willful and not in good faith? Negligent?).
- The likelihood that the breaching party will perform the remainder of the contract.
115
What result for a contract if a party failed to perform within the time stated in the contract?
Failure to perform within the stated time is not a material breach if performance is rendered within a REASONABLE TIME (this is the general time requirement when there's no time requirement stated as well). However, if the contract makes timely performance essential provides the time is of the essence, then failure to perform within the stated time is material.
-Merely including dates does not make the time material.
- Courts look to all circumstances to determine whether time was material.
116
What are a buyer's options when the Perfect Tender Rule is violated?
To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection. The buyer may:
- Reject the entire shipment and sue for damages.
- Accept the entire shipment (may be able to recover for the difference in value if sub-par).
- Reject in part and accept in part (must be in commercial units for this).
117
What can save a seller that delivers non-conforming goods in response to a buyer’s offer from breach?
A notice of accommodation accompanying the non-confirming goods. This equates to a counteroffer.
118
What things equate to an Acceptance of Goods after receiving the goods?
After a reasonable opportunity to inspect the goods, a buyer accepts goods if they:
- Indicate that the goods conform to the contract.
- Indicate that they'll keep non-conforming goods.
- Fail to reject within a reasonable time.
- Fail to notify the seller of rejection.
- Act inconsistent with the seller's ownership.
119
When may a buyer revoke their acceptance of goods?
The buyer may revoke their acceptance if (1) the goods have a DEFECT that SUBSTANTIALLY IMPAIRS their value to the buyer and (2) They accepted the goods on the reasonable BELIEF that the defect WOULD BE CURED and it has not been OR They accepted the goods because of the DIFFICULTY OF DISCOVERING the defects or because of the SELLER’S ASSURANCES that the goods conformed to the contract.
- The revocation must come within a reasonable time after the discovery.
120
What options does a seller have when their goods are rejected by a buyer?
- When non-conforming goods are rejected by the buyer, the seller has the right to cure the defect by sending conforming goods within the time for performance, provided that they seasonably notify the buyer of their intent to cure. The buyer must then accept the goods.
- Also, if the seller reasonably believes that the tender is conforming, the seller will have a reasonable time to cure.
121
When can a buyer reject an installment under an installment contract? Can they reject the entire contract?
Under installment contracts, the buyer can reject an installment if non-conformity substantially impairs the value of that installment. The whole contract is breached only if the non-conformity substantially impairs the entire contract's value.
122
The UCC gives a seller the right to cure a defective shipment within a reasonable time beyond the original time for performance in the contract if:
Prior dealings with the buyer led the seller to reasonably believe that the defective shipment would be acceptable.
123
What are the different types of remedies?
Breach: Expectation damages (put the party in the position they would have been in had the contract been performed).
Promissory Estoppel: Reliance damages (put the parties in the position they would have been in had the contract never happened).
Restitution: Restitution damages (returning the value of the benefit conferred--preventing unjust enrichment).
124
Are legal or equitable remedies preferred? What is needed to order specific performance?
Legal remedies (money) are preferred, not equitable remedies. To receive specific performance (equitable remedy), it must be showed that (1) money damages are inadequate and (2) the decree is feasible to enforce.
125
What are special rules regarding specific performance on contracts involving land?
All land is unique, so specific performance is always available in land sale contracts.
- This applies even if the land looks "boring" or not unique (exactly the same as other pieces of land).
- Specific performance not available if the land has already been sold to another who purchased it for value and in good faith (equitable defense of sale to a bona fide purchaser).
126
When is specific performance appropriate for sales of goods?
Specific performance is available for breach of a sale of goods contract if (1) the goods are unique OR (2) there are other appropriate circumstances (buyer is unable to cover the goods--EX: art and custom-made goods).
127
Is there a way for specific performance to be available as a remedy for service contracts? If so, how?
Specific performance is not available for service contracts (13th Amendment).
128
Can courts enjoin parties from working with other employers?
Yes. You can't get specific performance for service contracts, but you can prevent them from working for an employer.
129
How can a seller get Reclamation of goods under Article 2 of the UCC?
A seller can get reclamation of goods (reclaim goods sold on credit to an insolvent buyer) if (1) the buyer is insolvent (at the time she received the goods), (2) the seller demands Reclamation within 10 days of receipt (goods delivered to the buyer), and (3) the buyer has the goods at the time of the demand.
- NOTE: The seller CAN RECLAIM GOODS beyond the 10-day limit if (1) the buyer misrepresents his solvency (2) in writing, (3) within 3 months before delivery.
130
What is the default damages tools for contract remedies?
Expectation damages: The aim is to put the injured party in the position that they would have been in had the contract been fully performed.
131
How are damages calculated if expectation damages are uncertain?
RELIANCE DAMAGES. This is step two (you start with expectation damages). If the expectation damages are uncertain, the goal is to return the non-breaching party to the status quo / how they were before the contract (reliance damages).
132
How are Restitution damages measured?
Restitution damages: Measured by the value of the benefit conferred--this is returned (meant to prevent unjust enrichment).
((Seems that these are just applied when the court thinks appropriate? Maybe they pick between reliance and restitution damages when they can't use expectation damages))
133
What compensation can a non-breaching party seek to compensate for the resources that they had to invest as a result of the other party's breach?
The non-breaching party can seek INCIDENTAL DAMAGES (the costs to the injured buyer or seller of transporting or carrying for the goods after breach and of arranging a subsequent transaction). These are ALWAYS recoverable.
- These are the costs incurred in dealing with a breach.
- NOTE: Doesn't have to do with foreseeability!
134
When can a non-breaching party recover for the indirect costs of a breach?
CONSEQUENTIAL DAMAGES are the indirect result of some breach. These are recoverable ONLY IF they were FORESEEABLE at the time the contract was formed and ASCERTAINABLE WITH REASONABLE CERTAINTY.
- Not allowed under the UCC.
135
When are punitive damages allowed in contract law?
Never. We're just trying to make the Plaintiff whole, not punish the Defendant.
136
When are Liquidated Damages Clauses upheld?
Liquidated Damages Clauses are upheld if (1) the damages were difficult to estimate at the contract's formation AND (2) the damages amount is a reasonable forecast of probable damages (cannot be a penalty!).
- NOTE: An invariable amount (not proportional to the harm) is going to be invalid.
137
In a contract for the sale of goods, when a seller is in breach, what are the buyer's options for seeking damages?
- Cover Damages: Difference between the cover price (replacement goods--just need good faith in price of new contract) and the original contract price (most common!).
- Market Damages: Difference between the market price and the original contract price (EX: buyer goes and gets much more expensive goods).
- Loss in Value: Difference between the value of goods promised and the value of the goods as actually delivered (used when the buyer keeps the non-conforming goods).
NOTE: Consequential damages are not available under the UCC.
138
In a contract for the sale of goods, when is a seller liable for consequential damages in the case of breach?
A seller is liable for consequential damages arising from their breach if: (1) they had reason to know of the buyer’s general or particular requirements, and (2) the subsequent loss resulting from those needs could not reasonably be prevented by cover. Particular needs must be made known to the seller, but general requirements usually need not be.
139
When a non-breaching party seeks recovery of loss profits that result from the breaching party’s breach of contract, when are they recoverable?
These are consequential damages. Lost profits must be FORESEEABLE at the time of formation for recovery to be possible.
140
In a contract for the sale of goods, when a buyer is in breach, what are the seller's options?
- Resale Damages: Difference between the contract price and the resale price (assuming she resales the goods in good faith) (this is the normal measure of damages).
- Market Damages: Difference between the contract price and the market price (EX: Seller resells not in good faith).
- Contract Price: Value of the contract price, but only available if the seller can't resell the goods (EX: custom goods). Buyer should get the goods here.
- Lost-Volume Seller Rule: If the seller's supply is unlimited, then lost profits are the measure of damages (EX: car dealer).
141
How can a party recover regarding damages that that party could have mitigated?
Duty to Mitigate: An injured party cannot recover damages that it could have mitigated with REASONABLE EFFORT (without any burden or humiliation).
- The duty to mitigate is limited to similar-comparable subject matter (option of inferior goods/services no good).
142
What is Entrustment in contracts? How does this affect the rights of the entruster?
Entrustment is when a merchant who ordinarily deals in goods of kind sells entrusted goods to Bona Fide Purchaser for value (BFP). This always cuts off the rights of the entruster. The entruster can sue the seller for conversion.
143
When two people enter into a contract with the intent to benefit a third, what rights does that third person have?
That third party can enforce the contract even though they didn't make the contract.
144
What is an intended beneficiary? What are their rights regarding a third-party contract?
Intended beneficiary: Named in the contract. Can enforce the contract.
145
What is a promisor in the third-party contract context? What about the promisee?
Promisor: The party who promises to perform for the third party.
Promisee: The party who secured the promise for the third-party beneficiary.
146
If a promisor fails to perform, what defenses might they raise against a suing third-party beneficiary?
A promisor has the same defenses against the third party as against the promisee (EX: promisee's failure to pay).
147
What rights do third-party incidental beneficiaries have to enforce a contract?
While intended beneficiaries have the right to enforce a contract, incidental beneficiaries cannot enforce the contract directly.
- In determining if a beneficiary is intended, consider whether the beneficiary (1) is identified in the contract, (2) receives performance directly from the promisor, or (3) has some relationship with the promisee to indicate intent to benefit.
148
For how long can a promisor and promisee modify their contract for a third-party beneficary?
A contract can be rescinded/modified until the beneficiary's rights have vested.
- VESTING: A beneficiary's rights vest when (1) they learn of the contract and (2) assent, rely on it, or sue to enforce their rights.
- The promisor and promisee can't cancel the contract after vesting unless (1) the beneficiary consents OR (2) the contract provides otherwise.
149
What is an Assignment in contract law? What enforcement rights are created by this?
In an assignment situation, two parties make a contract. One party (assignor) assign/gives their rights to a third party (assignee).
- The assignee can enforce their rights against the party who owes the duty (obligor).
150
What language and consideration is needed for a valid Assignment?
There must be language of a PRESENT TRANSFER (EX: "i assign").
- NOTE: No consideration is needed to make a valid assignment (gifts are okay).
151
What are the general restrictions on assignments?
Language of Prohibition = Assignments are not permitted (an assignee without knowledge can still collect).
Language of Invalidation = Assignments are null and void (an assignee without knowledge cannot collect).
- Should opt for prohibition over invalidation if unsure.
152
Can an assignment change the duties of the obligor?
Assignments can't substantially change the duties of the obligor.
153
If an obligor is unaware that an assignment has been made, can recovery be made against them if they continue under the original arrangement?
No, payment to the assignor is okay until the obligor learns of the assignment to the assignee.
154
When there are multiple assignments of the same right, which assignee ultimately has the right(s) of the assignment?
- GIFT assignments are easily revoked, so later gratuitous assignees have the right to the assignment.
- The first assignee FOR CONSIDERATION wins over all subsequent assignees AND previous gift assignees.
- A later assignee for consideration prevails if he doesn't know of the earlier assignments and is the first to get a payment from or a judgment against the obligor.
155
What is a delegation? What result if there are prohibitions against delegations? What effect on delegations if assignments are prohibited?
In a delegation, the obligor/delegator promises to perform for the obligee, and the obligor/delegor delegates their duty to a delegate.
No delegations are allowed if delegations are prohibited or if the services are unique (can waive). If assignments aren't allowed, then no delegations are allowed.
156
What duties may be delegated? When is a delegate liable and what does this situation entail?
Generally, all duties may be delegated. Exceptions: (1) the duties involve personal judgment and skill; (2) delegation would change the obligee’s expectancy (for example, requirements and output contracts); (3) a special trust was reposed in the delegator by the other party to the contract; and (4) there is a contractual restriction on delegation.
- A delegate is liable if they've received CONSIDERATION for the delegator, and delegations for consideration create an intended third party (who has rights to enforce the contract).
157
What is a Novation and when does it occur?
A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation will serve to discharge the old contract.
The elements for a valid novation are: (1) a previous valid contract; (2) an agreement among all parties, including the new party (or parties) to the new contract; (3) the immediate extinguishment of contractual duties as between the original contracting parties; and (4) a valid and enforceable new contract.
- NOTE: This is different from a delegation, in which the original obligor is still liable.
158
What are the rights/obligations of the obligee after a novation?
A delegating party is released from benefits and liability.
159
What are the rights of the original obligee after a delegation?
The delegating party is still liable.
160
How might a concurrent oral agreement be part of a contract?
Where it is asserted that there was an oral agreement that the written contract would not become effective until the occurrence of a condition, evidence of the oral agreement may be offered and received (despite the parol evidence rule).
161
How might a concurrent oral agreement be part of a contract?
Where it is asserted that there was an oral agreement that the written contract would not become effective until the occurrence of a condition, evidence of the oral agreement may be offered and received (despite the parol evidence rule).
162
How do courts generally treat the time-sensitivity of real estate contracts?
Generally, courts assume that time is not "of the essence" in real estate contracts. This means that the closing date stated in the contract is not absolutely binding in equity, and that a party, even though late in tendering her own performance, can still ENFORCE THE CONTRACT if she TENDERS within a REASONABLE TIME AFTER THE DATE.
163
What is an exception to the surety rule of the statute of frauds?
The Main Purpose Exception. Under this exception, if the main purpose of the guarantor is to benefit themselves, the contract is taken out of the statute of frauds and is enforceable.
164
What are the requirements for a contract to be divisible? What result when the contract is non-divisible?
For a contract to be divisible, (1) the performance of each party must be divided into two or more parts under the contract, (2) the number of parts due from each party must be the same, and (3) the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.
- Divisibility is a question of contract interpretation and generally turns on fairness.
- If the contract is non-divisible, the breaching party receives nothing!
165
What result when there is a good faith dispute, one party sends a check (less than the original full amount) marked "payment in full," and the other party cashes the check?
This constitutes an accord and satisfaction, discharging the paying party's duty to pay the balance on the original amount.
- Note that this is because of the good faith dispute that arose.
166
?When can restitution damages be based on the contract price instead of benefit received by the non-breaching party?
Restitutionary recovery is usually based on the benefit received by the unjustly enriched party. If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant).
- A limit is applied here--the top value that the breaching party can receive is the contract price, because otherwise the non-breaching party would lose the bargained-for benefit of the exchange.
167
Can a party recover restitution damages when there is no contractual relationship between the parties?
Yes. Restitution may also be available in a quasi-contract action when there is no contractual relationship between the parties if: (1) The plaintiff has CONFERRED A BENEFIT on the defendant by rendering services or expending properties; (2) The plaintiff conferred the benefit with the REASONABLE EXPECTATION of being COMPENSATED for its value; (3) The OTHER PARTY KNEW or had reason to know of the plaintiff’s expectation; AND (4) The OTHER PARTY would be UNJUSTLY ENRICHED if they were allowed to retain the benefit without compensating the plaintiff.
168
Is a promise to pay a legal obligation that is now barred by law (EX: SOL) enforceable or illusory?
It is enforceable. If a past obligation would be enforceable except for that a technical defense stands in its way, courts will enforce a new promise if (1) it is in writing OR (2) there has been part performance.
169
When a buyer breaches a contract by refusing to accept goods, what are the sellers options for remedies under the UCC?
The seller's basic damages are either (1) the difference between the contract price and the market price OR (2) the difference between the contract price and the resale price plus incidental damages (if any). It depends on what the seller chooses to do.
170
When an insolvent buyer offers to pay cash, must a seller still deliver?
Yes.
171
Can personal services be delegated?
Generally no, but this can be waived (can be approved after it happens, like in the magician example).
172
What result when a party to a contract makes a misrepresentation to the other party?
Whether or not a misrepresentation is fraudulent, the contract is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.
- A misrepresentation is material if: (1) it would induce a reasonable person to agree, or (2) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not.
173
When are buyers' and sellers' damages measured, respectively?
Buyers' damages are measured as of the time they learn of the breach, while sellers' damages are measured as of the time for delivery.
174
Can a contract duty be delegated even though risk of lacking proper performance is materially increased?
No. A contractual duty may not be delegated if performance by the delegate will materially change the original obligee’s expectancy under the contract (EX: delegating production to another party that has no experience or reputation as someone who can handle that production).
