Contracts Flashcards
A new promise to pay a debt after the statute of limitations has run is
enforceable without any new consideration
The nonoccurence of a condition may be excused if
the party who benefits from the condition waives it by words or conduct
(once excused / waived the condition cannot be later raised in a defense)
A material breach of a contract allows for
the non-breaching party to withhold any promised performance and to pursue remedies for the breach, including damages
When the parties expressly agree to a condition precedent (or a concurrent condition) they are generally strictly liable to that condition, meaning
a party must fully comply with that condition before the other party’s performance is due
Under the UCC parole evidence rule, express terms of a written contract can be
(1) explained or (2) supplemented by the following evidence (in order of priority): course of performance (current k), course of dealing (prior k), and trade usage (based on industry)
The non-breaching party’s failure to mitigate
doesn’t give the breaching party a right to sue the non-breaching party for such failure, it only reduces the non-breaching party’s damages recovery
In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is
the difference between the K price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction
In order for a contract to be voidable for duress, there must be
force or an improper threat that deprives a party of a meaningful choice (generally, threat of civil litigation is not improper unless it is made in bad faith)
Induced by Force = VOID
Induced by Improper Threat = VOIDABLE
There is no substantial performance if
the incomplete performance was a material breach of contract (frustrated the significant purpose of the K)
Substantial performance is less likely to be found when
a party intentionally furnishes services that are materially different from what was promised
Actual damages can be either
direct or consequential
Total (material) breach of an installment contract requires
Nonperformance accompanied by repudiation
Economic waste occurs when
the cost to fix or complete the construction is clearly disproportional to any economic benefit or utility gained as a result
If a party breaches yet substantially performs
the non-breaching party is required to pay whatever remains on the contract price (or perform) but may bring suit later for damages
Requirements contracts satisfy UCC contract formation requirements even without naming specific quantities because
A duty of good faith and fair dealing is imposed in all contracts, whether governed by the UCC or common law
E.g. this means best efforts to supply the goods (for seller) and best efforts to promote their sales (buyer)
A party to an illegal contract may recover restitution damages if that party conferred a benefit on the other party and
(1) was justifiably ignorant of the facts that made the contract illegal
(2) was less culpable than the other party, OR
(3) withdrew before the conduct’s illegal purpose was achieved and did not engage in serious misconduct
A party to a contract must avoid or mitigate damages to the extent possible by
Taking steps that do not involve undue risk, expense, or inconvenience
When a party is suing a third-party beneficiary of a contract, the promisor can
raise any defense against the third party-beneficiary that the promisor had against the original promisee
Compensatory damages are meant to compensate the non-breaching party for
Actual economic losses
Expectation damages are intended to put the non-breaching party
In the same position as if the contract had been performed (must be calculated with reasonable certainty)
Compensatory damages consist of
(1) expectation, (2) consequential, and (3) incidental damages
Note: In real-estate contracts requiring delivery of possession of property, late delivery is a breach that entitles the buyer to expectation damages measured by FMV of the property for the time buyer was denied possession
Consequential damages are a direct result of breach but
need not be the usual result of the breaching party’s conduct (but are otherwise reasonably foreseeable in the event of a breach)
The primary test of whether a communication is an offer is whether an individual receiving the communication
would reasonably believe that he could enter into an enforceable deal by satisfying the condition
Damages are foreseeable if they were
(1) A natural and probable consequence of breach
(2) If they were “in the contemplation of the parties at the time the contract was made” OR
(3) If they were otherwise reasonably foreseeable
Non-performance of an installment constitutes a partial breach when
the only remaining duty at the time of the breach (1) is held by the breaching party and (2) is for the payment of money in further (unrelated) installments
Under the UCC parole evidence rule, express contract terms can be
(1) supplemented or (2) explained but NOT contradicted
The Warranty of Merchantability may be disclaimed for defects that an examination would have revealed if, before entering the contract, the buyer
Examined the goods as fully as desired or refused to examine them
Under the pre-existing duty rule, a promise to perform a duty that a party is already legally bound to perform is
void of consideration
When the owner breaches a construction contract before or during construction, the builder can recover
lost profits (expectation damages) plus any reasonably incurred costs
An illusory promise
cannot supply the necessary consideration for contract formation, and may be exhibited when a party essentially pledges nothing because the promisor can choose whether to honor it
No oral modification clauses can be waived through
parties’ words or conduct, and cannot be retracted if a party has materially changed position in reasonable reliance on the waiver
To accept an offer, the offeree must
manifest an objective intent to be bound by the terms of the offer AND follow ANY specifications in the offer as to the time, place, and manner of acceptance (overrides mailbox rule)
Non-disclosure is equivalent to
an assertion that a fact does not exist if the party not disclosing the fact knows the disclosure is necessary to prevent a previous assertion from being fraudulent
To satisfy the SoF, the writing need
not be formal but must be signed by the party to be charged and contain the essential elements of the deal
Under the SoF a writing is not required for
(1) specially manufactured goods
(2) goods for which payment has been made and accepted,
(3) goods which are received and accepted, or
(4) when a merchant fails to object to a confirming memorandum from another merchant within 10 days of receipt of the memorandum.
How do K modifications differ under the UCC and Common Law
Common Law requires consideration for modification
UCC only requires Good Faith
Elements of Mutual Mistake (which warrant rescission of K)
(1) Mistake of fact existed at the time of K formation
(2) Mistake goes to a basic assumption of fact
(3) Mistake has a material effect on the K
(4) Adversely effected party did not assume the risk of the mistake
Note: Compare with REFORMATION of a K which happens if
(1) both parties are mistaken,
(2) there was a prior agreement put to writing, and
(3) that writing differed from the prior agreement BECAUSE of the mistake, the K may be reformed
The implied warranty of merchantability can be disclaimed
Orally if including the word “merchantability” OR in writing if conspicuous (e.g. either explicit disclaimer or language such as “as is”)
What is the doctrine of anticipatory repudiation and when/how is it effective
The doctrine of anticipatory repudiation is applicable when a promisor repudiates a promise BEFORE the time for performance is due.
The repudiation must be clear and unequivocal, may be by conduct or words, and, if a statement, must be made to the promisee or a third-party beneficiary or assignee of the promise.
Calculation of Expectation Damages
Loss in K value + other losses - costs avoided - losses avoided
If the new consideration of an accord is worth less than what was originally promised, then it is sufficient only if
(1) there is a good-faith dispute as to the amount owed or
(2) it is of a different type than what was originally owed.
Essential terms in a land-sales contract are
Price and subject matter
An assignment may be either
For value or gratuitous.
An assignment for value is not revokable, but a gratuitous assignment is (e.g. assigned again to a different party)
If there’s an options contract within another contract, consideration for the greater contract serves as
consideration for the options contract as well (options contract does not independently need consideration)
In either type of auction setting, a bidder has the right to retract (i.e., withdraw) a bid until
The auctioneer announces the completion of the sale (e.g., at the fall of the auctioneer’s hammer).
However, the bidder’s retraction will not revive any prior bids.
Under the UCC firm-offer rule, an offer is irrevocable if
(1) the offeror is a merchant who provides (2) a signed, written assurance that (3) the offer will remain open
Note: MAY be deemed to exist absent these formalities if there was detrimental reliance
Under the UCC, no-oral-modification clauses are generally enforceable when
contained in a written, signed contract
General disclaimers (e.g. “all warranties, express or implied, are hereby disclaimed”) cannot be
construed consistently with an express warranty. When this occurs, the disclaimer is ignored
Under the UCC, a seller creates an express warranty in a contract for the sale of goods when the seller
makes an affirmation of fact or promise about the goods that becomes part of the basis of the bargain
(opinions or commendations do NOT create express warranties)
An incidental beneficiary is a third party who benefits from a contract, even though
the contracting parties did not intend to benefit the third party (and therefore cannot enforce a contract under any circumstances)
Contracts subject to the Statute of Frauds are
Marriage - K in consideration of marriage
Suretyship - promise to pay another’s debts
Over 1 year
UCC goods over $500
Real Property - sales or transfers
Mr. SOUR
Damages for Minor vs. Material breach for breaching party
Minor breach: Can recover expectancy or reliance damages
Material breach: Can only cover restitution damages
A non-breaching seller may reclaim goods from a buyer when
the seller:
(1) discovers the buyer received the goods on credit while insolvent and
(2) demands the goods be returned within 10 days after their receipt.
(Note: This 10-day limitation does not apply if the buyer misrepresented its solvency in WRITING within three months before delivery)
When a buyer repudiates or breaches a contract that deals with specifically identified goods, the risk of loss immediately passes from the seller to the buyer. When this occurs, the seller can recover
any deficiency between the seller’s insurance coverage and the contract price within a commercially reasonable time
Punitive damages are rarely available in contract actions and are not typically recoverable unless
the conduct constituting the breach is also a tort for which punitive damages are available
(some statutes allow for the purpose of punishing fraud, violation of fiduciary duty, acts of bad faith, and for deterrence)
If, in the course of an assortment of goods for delivery contract, a buyer fails to timely select the assortment, the seller can
(1) proceed in any reasonable manner or
(2) treat the failure as a breach
Note: Failure of buyer to timely select assortment must materially impact the seller’s performance to allow the seller to treat the failure as breach
Under a condition precedent, performance is
delayed until a specified event occurs and requires the PLAINTIFF to prove that the event occurred to prevail
Under a condition subsequent, performance is
excused if a specific event occurs and requires the DEFENDANT to prove that event occurred to avoid liability
Specific performance is an equitable remedy which is appropriate when
a party’s remedy at law (i.e. monetary damages) is inadequate
Must be (1) Valid K, (2) Clear terms of K, (3) Non-breaching parties has satisfied all conditions precedent, (4) Money damages are inadequate, (5) feasible for court to enforce
A seller can only recover the contract price of the goods after a buyer failed to pay if
(1) the buyer accepted the goods
(2) the goods were lost or damaged within a commercially reasonable time after the risk of loss passed to the buyer, or
(3) the buyer returned or rejected the goods and the seller could not resell them
A buyer acquires an insurable interest in goods upon
(1) the identification of the goods.
Unless: The K is for future goods in which the buyer acquires an insurable interest when the seller designates goods as those to which the contract refers, unless the parties have explicitly agreed otherwise
Under a shipment contract, the risk of loss passes to the buyer when
the seller delivers the good to the third party carrier
Note: Shipment is presumed when the K calls for delivery by 3rd party
Under the UCC if a seller ships goods in response to an offer it
constitutes acceptance immediately and creates a K with the terms of the offer shipment was sent in response to
In an employment contract, salary is
an essential term (MUST be included otherwise no valid K)
Fraud in Factum v. Fraud in Inducement
In Factum - VOID
In Inducement - VOIDABLE
In calculating damages, there must be
(1) foreseeability
(2) causation
(3) certainty (reasonable certainty of damages amount)
A contract for the sale of goods is outside the UCC Statute of Frauds (excluded from SoF) to the extent that goods are
received and accepted, and to the extent that payment has been made and accepted
Memorandum for UCC goods to satisfy SoF requires
A writing that
(1) indicates that a contract has been made,
(2) identifies the parties
(3) contain a quantity term, and
(4) is signed by the party to be charged
PER may supplement info but NOT quantity. Signature need not be “formal”
Suretyship contracts must be in writing to satisfy the SoF unless
the purpose of the suretyship is for the guarantor’s personal economic advantage, NOT the principal’s benefit
If the seller makes a nonconforming tender or tenders nonconforming goods under one segment of an installment contract, the buyer can
reject only if the nonconformity substantially impairs the value of that shipment to the buyer and cannot be cured.
If the seller makes adequate assurances that he can cure the nonconformity, then the buyer must accept the shipment.
Consideration is
a legal detriment or bargained for exchange
A repudiation may be revoked / undone unless
the non-repudiating party:
(1) Cancelled the contract
(2) Materially changed its position on reliance of the repudiation, or
(3) Otherwise indicated the repudiation to be deemed final
A writing satisfies the SoF if it
(1) reasonably identifies the subject matter of the contract
(2) is sufficient to indicate a contract has been made
(3) states with reasonable certainty the ESSENTIAL terms of the contract
Writing must be signed by the party against whom enforcement is sought
Although expectancy damages normally are awarded in a breach-of-contract action, restitutionary damages are permitted in cases where
the nonbreaching party has partially performed a below-market-price contract
A minor may disaffirm a contract entered into before reaching majority either
before reaching the age of majority or within a reasonable time thereafter
Note: A minor may still disaffirm a contract for necessities, though a party may be able to recover damages
Larceny, assault, and battery all merge into
Larceny, assault, and battery all merge into completed offenses OR attempted offenses (e.g. assault would merge into attempted robbery)
A member of a common-interest ownership community, such as a condominium, is not entitled to
withhold payment of assessments to set off against a default by the association in fulfilling its duties to the member
A misrepresentation about the contents or effect of a writing is grounds for reformation (or voiding K) if
(1) the misrepresentation was fraudulent
(2) it induced assent to the contract, and
(3) the adversely affected party’s reliance was justifiable
For contracts for the sale of goods, a defaulting buyer is entitled to a refund of any payments made on the contract less
(1) damages provable by the seller and either
(2) (i) the amount to which the seller is entitled by virtue of an enforceable liquidated-damages provision or
(ii) a penalty of “20 percent of the value of the total performance for which the buyer is obligated under the contract, or $500, whichever is smaller.”
If a contract is assigned despite a non-assignment clause, the non-assigning party
must still abide by the terms of the contract to the assignee, but will have a claim against the assignor for breach of contract
Under the UCC, the buyer has the right to
inspect the goods before deciding whether to accept or reject
Non-occurrence of a condition may be excused only by
the party who benefits from the condition (can be waived by words or conduct)
Specific performance is more likely to be awarded when
damages are inadequate (e.g. the goods are rare)
In order for a gratuitous promise to be enforceable by a charity it must
be made in writing
If a seller delivers an unmarketable title, a buyer may
(1) rescind the contract and recover payments
(2) sue for breach of contract, or
(3) bring an action for specific performance with an abatement of the purchase price (e.g., price adjustment to compensate the buyer for the defect)
Damages for failing to perform a real estate sales contract are measured by
the difference between the contract price and the market value on the date of the breach
A contract under the UCC will be valid if it is made in
any manner sufficient to show agreement, including conduct by both parties which recognize the existence of such a contract
A party may not delegate a contract if there’s an exculpatory clause in the contract because
an exculpatory clause releases a party from liability and thus delegation would release the delegatee party from liability, violating the fundamental principle that a delegatee IS liable to the original promisor
Note: Original party to the contract must also voluntarily apply exculpatory clause to the delegatee party
An exception to the mailbox rule is for options contracts, in which acceptance is effective when
received
Types of contracts not assignable or delegable include
personal service, requirements, or contracts which prohibit (anti assignment / delegation clauses)
Excuses for non-performance include
(1) Impossibility (illegality, destruction of subject matter, death of necessary person)
(2) Impracticability (severe burden)
(3) Frustration of purpose (principal purpose of entering K substantially / totally frustrated)
FOB Buyer v. FOB Seller
FOB seller = default (shipment K), ROL passes to buyer when given to 3rd party carrier
FOB buyer = destination K, ROL passes to buyer upon delivery
Common Law Gap Fillers
Price: Reasonable value
Duration: Employment at will
UCC Gap Fillers
Price: Reasonable price
Time of delivery: reasonable time
Time of payment: time and place of receipt by buyer
Place of delivery: Seller’s place of business
PER does NOT apply to
(1) Oral condition precedent
(2) Subsequent agreements or modifications
(3) Collateral agreements
(4) Attacking validity of K (argue duress, fraud, ambiguity, no consideration)
Both merchants + additional terms?
Additional terms become part of K unless
(1) acceptance is made conditional on assent to additional terms
(2) original offer expressly limits acceptance to offer terms
(3) new terms materially alter original terms
(4) offeror objects to change within a reasonable time
If EITHER party is NOT a merchant, additional terms are
mere proposals and not part of K unless offeror agrees to modified terms
With regards to additional terms, the common law requires
mirror image of both offer and acceptance
An offeree must accept an offer within
a reasonable time or terms specified
Sublessees and Landlords are in neither
privity of estate OR privity of contract (landlord remains in PofE and PofC with tenant)
Impossibility of a contract is not a defense when
a party assumes the risk of an event (e.g. risk was foreseeable)
A period of temporary impracticability merely
suspends performance until the impracticability ends, UNLESS it materially burdens performance (then it discharges it)
PER does not apply to (and thus evidence is always admissible for)
prior communication introduced to establish remedies for breach
A party’s promise to pay money received pursuant to a K with a 3rd party is not
an assignment of the party’s contractual rights, but a promise of future payment (assignment requires PRESENT intent to transfer)
Unilateral mistakes require
(1) A mistake as to a basic assumption of fact which materially affects performance
(2) Mistaken party did not bear risk of mistake, AND
(3) Nonmistaken party knew of the mistake OR enforcement of the K would be unconscionable
Remedies = K can be voided or reformed if due to fraudulent misrepresentation
