Contracts Flashcards
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 is simply a legally enforceable agreement.
For a contract, we need to have an ___ plus ____
agreement; something more that makes it legally enforceable. Typically, that’s going to be consideration or a substitute for consideration
TYPES OF CONTRACTS
- Express contracts are formed by language, oral or written.
- Implied contracts are formed by conduct.
- Quasi-contracts (which are not contracts at all)
Quasi-Contracts
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.
A bilateral contract is one consisting of ___
the exchange of mutual promises; that is, a promise for a promise.
A bilateral contract offer can be accepted in ___
any reasonable way.
Implied Contract
Parties’ conduct indicates that they assented to be bound.
Express Contract
Promises are communicated by language.
A unilateral contract is one in which the offeror requests ____
performance rather than a promise.
A unilateral contract, which requires full performance, occurs in only two situations:
(1) when the offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; AND (2) where there is an offer to the public, such as a reward offer.
A void contract is one that is ___
totally without any legal effect from the beginning (for example, an agreement to commit a crime). It cannot be enforced by either party.
A voidable contract is one that ____
one or both parties may elect to avoid, such as by raising a defense that makes it voidable, like infancy or mental illness.
An unenforceable contract is ___
otherwise valid but isn’t enforceable due to a defense, such as the statute of limitations or Statute of Frauds.
For contracts involving the sale of goods, ___ applies.
Article 2 of the Uniform Commercial Code (“UCC”)
“Goods” are ____
all things movable at the time they are identified as the items to be sold under the contract
A number of the rules in Article 2 depend on whether the seller and/or buyer are ___
merchants.
Article 2 generally defines “merchant” as one who ____
regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved.
For Article 2 provisions dealing with general business practices (for example, Statute of Frauds, confirmatory memos, firm offers, modification),
_____. But remember that some Article 2 provisions (for example, the implied warranty of merchantability) are _____.
almost anyone in business can be deemed a merchant; narrower and require a person to be a merchant with respect to goods of the kind involved in the subject transaction.
If a sale involves both goods and services, you will _____; However, if the contract divides payment between goods and services, then ____
determine which aspect is dominant and apply the law governing that aspect to the whole contract; Article 2 will apply to the sale portion and the common law will apply to the services portion.
Every contract within the UCC imposes an obligation of ____
good faith in its performance and enforcement.
The common law also imposes a duty of ____
good faith and fair dealing.
“Good faith” is ____
honesty in fact and the observance of reasonable commercial standards
For an agreement to be enforced as a contract, there must first be ____
mutual assent
Whether mutual assent is present will be determined by an ____
objective standard
When a suit is brought in which one party seeks to enforce a contract or to obtain damages for breach of contract, a court must first decide whether there was in fact a contract. In making this determination court will ask the following three basic questions:
- Was there mutual assent?
- Was there consideration or some substitute for consideration?
- Are there any defenses to creation of the contract?
For a communication to be an offer, it 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.
In deciding whether a communication creates this reasonable expectation (and thus an offer), ask:
- Was there an expression of a promise, undertaking, or commitment to enter into a contract?
- Were there certainty and definiteness in the essential terms?
- Was there communication of the above to the offeree?
For a communication to be an offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than ____; that is, there must be an
intent to enter into a contract.
a mere invitation to begin preliminary negotiations
What is considered by a court in determining if an offer exists:
- Language
- Surrounding circumstances
- Prior practice and relationship of the parties
- Method of communications
The broader the communicating media (for example, publications), the more likely it is that the courts will ____
view the communication as merely the solicitation of an offer.
Advertisements, catalogs, circular letters, and the like containing price quotations are usually construed as ____
mere invitations for offers.
An offer must be definite and certain in its terms. The basic inquiry is whether ____
enough of the essential terms have been provided so that a contract including them is capable of being enforced.
What terms need to be in an all offers such that they are capable of being enforced?
- Identification of the Offeree
- Definiteness of Subject Matter
Requirements for Specific Types of Contracts to be enforceable: Real Estate Transactions
An offer involving realty must identify the (1) land and (2) the price terms.
-> The land must be identified with some particularity but a deed description isn’t required
Requirements for Specific Types of Contracts to be enforceable: Sale of goods
In a contract for the sale of goods, the quantity being offered
must be certain or capable of being made certain
Requirements for Specific Types of Contracts to be enforceable: Employment Contracts
In contracts for employment, if the duration of the employment is not specified, the offer, if accepted, is construed as creating a contract terminable at the will of either party.
Requirements for Specific Types of Contracts to be enforceable: Other Services
The nature of the work to be performed must be
included in the offer.
Do requirements/output contracts violate the definite and certain terms requirement?
No! It is assumed that the parties will act in good faith; so, they MAY be enforced
In a ____, a buyer promises to buy from
a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer. In an ___, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
requirements contract; output contract
For requirements/output contracts there can’t be a tender of or a demand for a quantity ____
unreasonably disproportionate to (1) any stated estimate, or (2) (in the absence of a stated estimate) any normal or otherwise comparable prior output or requirements.
The fact that one or more terms are left open does not prevent the formation of a contract if ____
it appears that the parties intended to make a contract and there is a reasonably certain basis for giving a remedy. In such a case, the majority of jurisdictions and Article 2 hold that the court can supply reasonable terms for those that are missing.
If a contract for the sale of goods is missing a price
term, Article 2 provides ____
that the price will be a reasonable price at the time of delivery.
Except in contracts for ___, the failure to state the
___ doesn’t prevent the formation of a contract if the parties intended to form a contract without the price being settled.
real property; price
If an agreement doesn’t specify the time in which an act is to be performed, the law ____
implies that it is to be performed within a reasonable time.
The presumption that the parties’ intent was to include a reasonable term goes to supplying ___.
missing terms.
The presumption to include reasonable terms cannot be made if the parties have ____. However, this can be cured by ____
included a term that make the contract too vague to be enforced; part performance that clarifies the vague term or by acceptance of full performance.
If a material term is vague or ambiguous, it is ____
not an offer at common law or under the UCC
Often, an offer will state that some term is to be agreed on at a future date. If the term is ___, the offer is too uncertain.
a material term
To have the power to accept, the offeree must have ____ of the offer. Therefore, ___
knowledge; the proposal must be communicated to them.
An offer can’t be accepted after it has been ____. This may occur by ___
terminated; an act of either party or by operation of law.
Termination by Acts of Parties
- Termination by Offeree
- Termination by Offeror—Revocation
Termination by Offeree
- Lapse of Time
- Rejection
The offeree must accept the offer within ____
the time specified or, if no time period is specified, within a reasonable time (A reasonable amount of time is a question of fact that depends on all the circumstances at the time the offer and attempted acceptance are made, such as the nature of the contact, the parties’ purposes, or their course of dealing.)
Ways an offer can be rejected
- Express Rejection
- Lapse of time
- Counteroffer (distinguish mere inquiry)
- Conditional Acceptance
An express rejection is a statement by the offeree that ____
they do not intend to accept the offer. Such a rejection will terminate the offer.
A counteroffer is an offer made by the offeree to the offeror that ____
contains the same subject matter as the original offer, but differs in its terms
A counteroffer is both a ____
rejection and a new offer. It terminates the original offer and reverses the roles of the parties
Distinguish between a counteroffer (which constitutes a rejection) and a mere inquiry. An inquiry won’t terminate the offer when ____
it is consistent with the idea that the offeree is still keeping the original proposal under consideration
–> The test is whether a reasonable person would believe that the original offer had been rejected.
When an acceptance is made expressly conditional on the acceptance of new terms, it is a ____ of the offer.
rejection
The offer that results from a conditional acceptance ___. If the parties ship or accept goods after a conditional acceptance, a contract is ___.
cannot be accepted by performance; formed by their conduct, and the new terms are not included.
A rejection is effective when ____
received by the offeror.
Because an option is a contract to keep an offer open, a rejection of or a counteroffer to an option ___ a termination of the offer. The offeree is ___
does not constitute; still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.
A ____ is the retraction of an offer by the offeror
revocation
An offeror may revoke by directly ____
communicating the revocation to the offeree
An offer made by publication can be directly revoked only by ____
publication through comparable means
An offer may also be revoked indirectly if the offeree receives:
(1) correct information, (2) from a reliable source, (3) of acts of the offeror that would indicate to a reasonable person that the offeror no longer
wishes to make the offer
–> For example, after the offeror offers to sell their car to the offeree, the offeree is told by a reliable third party that the offeror just sold the car to someone else.
A revocation is generally effective when ____. Where revocation is by publication, it is effective when ___
received by the offeree; published.
A written communication is “received” when it is delivered to a place of business through which the contract was made or another location authorized to receive this type of communication. It does not matter whether the recipient ___
actually reads the communication.
Offers can be revoked at will by the offeror, even if he has promised not to revoke for a certain period, except in the following circumstances
- Options
- Merchant’s Firm offer under Article 2
- Detrimental Reliance
- Beginning Performance in Response to True Unilateral Contract Offer
- Beginning Performance—Offer Indifferent as to Manner of Acceptance
An option is a distinct contract in which ____
the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer
Merchant’s Firm Offer Under Article 2
Under Article 2: (1) if a merchant, (2) offers to buy or sell goods in a signed writing (includes letter head), and (3) the writing gives assurances that it will be held open
–> the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months).
In no event may a merchant’s firm offer exceed ___
3 months (if you want longer = pay!)
Detrimental Reliance on an offer
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time.
An offer for a true unilateral contract becomes irrevocable once ____.
- The offeror must ____
- The offeree is ___
performance has begun;
- give the offeree a reasonable time to complete performance.
- not bound to complete performance
Substantial preparations to perform (as opposed to the beginning of performance) do not ____ but may constitute ___
make the offer irrevocable; detrimental reliance sufficient to make the offeror’s promise binding to the extent of the detrimental reliance.
Most offers are indifferent as to the manner
of acceptance, and thus, a bilateral contract may be formed ____; Therefore, once the offeree ___
upon the start of performance by the offeree; begins performance, the contract is complete and
revocation becomes impossible. (But note: Notification of the start of performance may be necessary.)
An offeree generally cannot reject if they ____
already accepted
The following events will terminate an offer by operation of law:
- Death or insanity of either party (unless the offer is of a kind the offeror could not terminate, such as, an option supported by consideration).
–> Death or insanity need not be communicated to
the other party - Destruction of the proposed contract’s subject matter OR
- Supervening illegality
An acceptance is a ____
manifestation of assent to the terms of an offer.
Only____ has the power of acceptance. A member of a class ____ also has the power to accept.
the person to whom an offer is addressed; to which an offer has been directed
Generally, an offeree’s power of acceptance ____ be assigned. But, if the offeree ____, the right to accept is transferable
cannot; paid consideration to keep the offer open (an option contract)
The offeree must ____ in order to accept it, and this is true whether the offer is for a bilateral or unilateral contract.
know of the offer
Unless an offer specifically provides that it may be accepted only through performance, it will be construed as ____
an offer to enter into a bilateral contract and may be accepted either by a promise to perform or by the beginning of performance
Unless the offer provides otherwise, acceptance of an offer to enter into a bilateral contract must be ____
communicated to the offeror.
Silence as Acceptance - General Rule
Generally, an offeree can’t be forced to speak or have their silence treated as acceptance.
Silence as Acceptance - Exceptions
A court may find silence works as an acceptance if:
- Because of prior dealings or trade practices, it would be commercially reasonable for the offeror to consider silence an acceptance.
- The recipient of services knows or should have known that the services were being rendered with the expectation of compensation and, by a word, could have prevented the mistake, the recipient may be held to have accepted the offer if they fail to speak.
Unless otherwise provided, an offer is construed as inviting acceptance in ____. Any ____ of the offeree’s counterpromise is usually sufficient.
any reasonable manner and by any medium reasonable under the circumstances; objective manifestation
Under Article 2, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by ____
a promise to ship or by current or prompt shipment of conforming or nonconforming goods.
Re acceptance, traditional contract law insists on an ____
absolute and unequivocal acceptance of each and every term of the offer (the “mirror image rule”).
At common law, ANY different or additional terms in the acceptance make the response a ____
rejection and counteroffer.
A unilateral contract is not accepted until performance is ____
completed
- Recall that the beginning of performance may create an option so that the offer is irrevocable.
- However, the offeree is not obligated to complete performance merely because they have begun performance, as only complete performance constitutes an acceptance of the offer.
To accept a unilaterial contract, generally, the offeree is not required to ____ but is required to ____.
- give the offeror notice that he has begun the requested performance
- notify the offeror within a reasonable time after performance has been completed.
No notice is required of the completion of of performance pursuant to a unilaterla contract if
(1) the offeror waived notice; or (2) the offeree’s performance would normally come to the offeror’s attention within a reasonable time.
The shipment of nonconforming goods is an ____ as well as a ____ unless ____.
- acceptance creating a bilateral contract
- breach of the contract; the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation
Where a seller sends nonconforming goods, the buyer is ____.
not required to accept accommodation goods and may reject them
If the buyer rejects nonconforming goods that the buyer sent as an accommodation and the buyer rejects, the shipper ____
isn’t in breach and may reclaim the accommodation goods, because the tender does not constitute an acceptance of the buyer’s original offer (it is a counter offer!)
The accommodation shipment rule applies only when ____
shipment is used as a form of acceptance. If a party accepts verbally and then ships non-conforming goods = breach!
Article 2 has ___ the mirror image rule, providing instead that the inclusion of additional or different terms by the offeree in a definite and timely acceptance does not constitute a rejection and counteroffer, but rather is ____
abandoned; effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms.
Whether additional or different terms in an acceptance become part of the contract under the UCC depends on ____
whether or not both parties are merchants.
Under the UCC if ___ to the contract is not a merchant, the additional or different terms in an acceptance are considered to be ____
any party; mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.
Under the UCC if ___ parties to the contract are merchants, ADDITIONAL terms in the acceptance ___ unless:
both; will be included in the contract
- They materially alter the original terms of the offer, such as by changing a party’s risk or the remedies available (If “customary” in the industry = generally not material, disclaiming warranties is a material change)
- The offer expressly limits acceptance to the terms of the offer
OR
- The offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received
Under the UCC there is a ____ over whether terms in the acceptance that are ___
split of authority; different from (as opposed to in addition to) the terms in the offer will become part of the contract.
Approaches under the UCC where different terms are included in teh “acceptance”
- Some courts treat different terms like additional terms (go through the typical test)
- Other courts follow the “knockout rule,” which states that conflicting terms in the offer and acceptance are knocked out of the contract, because each party is assumed to object to the inclusion of such terms in the contract.
But note = even though a response with different
terms can constitute an acceptance under Article 2, there still must be a meeting of the minds or there is no contract. Watch for differences in the price, quantity, or quality terms— they likely indicate that there isn’t sufficient meeting of the minds to constitute a contract.
A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to ____
the battle of the forms provisions. (Additional terms are put through the material alteration test).
In situations in which it cannot be determined with certainty which specific communication was the offer and which the acceptance but the parties act as though there is a contract, the UCC considers this a
____
binding contract even though the moment of its making is uncertain
Acceptance by mail or similar means is effective at ___, provided that the mail is properly addressed and stamped, unless one of these exceptions applies.
the moment of dispatch (mail box rule)
Exceptions to the mail box rule
- The offer stipulates that acceptance is not effective until received.
- An option contract is involved (an acceptance under an option contract is effective only upon receipt).
- The offeree sends a rejection and then sends an acceptance, in which case whichever arrives first is effective.
- The offeree sends an acceptance and then a rejection, in which case the acceptance is effective (that is, the mailbox rule applies) unless the rejection arrives first and the offeror detrimentally relies on it.
Where an offeree sends a rejection and then sends an acceptance, ___ is effective.
whichever arrives first
Where an offeree sends an acceptance and then a rejection, the ____ is effective (that is, the mailbox rule applies) unless ____
acceptance; the rejection arrives first and the offeror detrimentally relies on it.
The mailbox rule applies only to ____
acceptance. It does not apply to other events in the contract setting, such as rejection or revocation.
For option contracts, acceptance of the underling offer is effective when ___
received (mail box rule doesn’t apply)
An acceptance transmitted by unauthorized means or improperly transmitted by authorized means may _____
still be effective if it is actually received by the offeror while the offer is still in existence.
If a contract is not formed by the parties’ communications, but they begin to perform as if they formed a contract, a contract is ___
formed.
The UCC provides that a sale by auction is complete when ___
the auctioneer so announces by the fall of the hammer or in another customary manner
An auction sale is ___ unless the goods are explicitly put up without reserve.
with reserve (means the auctioneer may withdraw the goods at any time until he announces completion of the sale)
Two elements are necessary to constitute consideration:
(1) a bargained-for exchange between the parties; and (2) legal value, meaning that which is bargained for must be considered of legal value or, as it is traditionally stated, it must constitute a benefit to the promisor or a detriment to the promisee.
Bargained-For Exchange requires that:
the promise induce the detriment and the detriment induce the promise. There is no bargain involved (meaning, no consideration) when one party gives a gift to another.
An act or forbearance by the promisee (or a promise to act or forbear) is sufficient consideration to form a contract if ____
it benefits the promisor. (The benefit, however, need not be economic)
A promise given in exchange for something already done ___ satisfy the bargain requirement.
does not
Exceptions to past consideration rule
- Where a past obligation is unenforceable because of a technical defense (for example, the statute of limitations), that obligation will be enforceable if a new promise is made in writing or is partially performed.
- Also, under the modern trend, if a past act benefited the promisor and was performed by the promisee at the promisor’s request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.
In general, courts do not inquire into ____.
the adequacy or fairness of consideration
- Note that if there is a possibility of value in the thing bargained for, consideration will be found even if the value never comes into existence.
Exceptions to the adequacy of consideration rule:
- If something is entirely devoid of value
(token consideration), it is insufficient. - Sham consideration (insignificant sum recited in the contract) is also insufficient if not paid.
Legal detriment results if the promisee ___.
does something they are not legally obligated to do or refrains from doing something they have
a legal right to do. A legal benefit is the reverse.
Traditionally, performing or promising to perform an existing legal duty is ___
insufficient consideration.
Exceptions to the pre-exisiting duty (non-consideration) rule
- New or different consideration is promised;
- The promise is to ratify a voidable obligation (for example, a promise to ratify a minor’s contract after reaching majority or a promise to go through with a contract despite the other party’s fraud);
- The preexisting duty is owed to a third person rather than to the promisor;
- There is an honest dispute as to the duty; OR
- There are unforeseen circumstances sufficient to discharge a party (such as impracticability), or under the modern view, if the modification is fair and equitable in view of circumstances not anticipated when the contract was made.
A good faith agreement modifying a contract subject to the UCC needs ____ to be binding.
no consideration
Payment of a smaller sum than due on an
existing debt is generally ____ for a promise by the creditor to discharge the debt
not sufficient consideration
- BUT check the facts for new or different consideration given (for example, payment earlier than required or payment in stock
instead of cash)
Under general/traditional contract law, a contract can’t be modified unless the modification is ___. The modern view, however, permits modification without consideration if:
supported by new consideration.
- (1) the modification is due to circumstances that were unanticipated by the parties
when the contract was made and (2) it is fair and equitable. (assume MBE is using this rule = majoirty)
For a modification of a contract under the
UCC, consideration ____
isn’t necessary to modify; all the parties need are good faith promises of new and different terms.
A debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if ____
there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration.
A promise to refrain from suing on a claim constitutes consideration if ____
the claim is valid or the claimant in good faith believed the claim was valid.
MUTUAL AND ILLUSORY PROMISES—REQUIREMENT
OF MUTUALITY
Consideration must exist on both sides of a contract (although the benefit of the consideration generally need not flow to all parties)
If only one party is bound to perform, the promise is ___ and ___
illusory; will not be enforced.
-> Courts often supply implied promises (for example, a party must use their best efforts) to infer mutuality.
The following are common examples of contracts that satisfy the mutuality requirement:
- Requirements and output contracts
- Conditional promises, unless the condition is entirely within the promisor’s control
- Contracts where a party has the right to cancel, if that right is somehow restricted (for example, a party must give 60 days’ notice)
- Exclusivity agreements (for example, exclusive marketing agreements) because the court will find an implied promise to use best efforts
- Voidable promises (for example, one made by an infant)
- Unilateral and option contracts, and
- Gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
A promise to choose one of several alternative means of performance is illusory unless ___
every alternative involves legal detriment to the promisor.
A promise to choose one of several alternative means of performance will not be found illusory if: ____
(1) at least one alternative involves legal detriment and the power to choose rests with the promisee or a third party, or (2) a valuable alternative (that is, one involving legal detriment) is actually selected.
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if:
- It is necessary to prevent injustice
- The promisor should reasonably expect to induce action or forbearance, and
- Such action or forbearance is in fact induced.
If the elements for promissory estoppel are present, some jurisdictions will award ____ (that is, what was promised under the contract), but the Second Restatement provides that the remedy “may be limited as justice requires.”, Thus, these courts might award ___
expectation damages; reliance damages
Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because ___
- there is a defect in capacity (making the obligations
voidable by one of the parties) - there is a defense to formation of the contract,
- or because a defense to enforcement of certain
terms exists.
Legal Incapacity to Contract implicates:
Minors, mental incapacity, intoxication
____ generally lack capacity to enter into a contract binding on themselves. But, contractual promises of an adult made to an infant are binding on ___
Infants/minor (in most jurisdictions, anyone under the age of 18); the adult
An infant (minor) may choose to ___ a contract any time before (or shortly after) reaching the age of majority.
- The contract must be disaffirmed as ___
disaffirm; a whole; it can’t be affirmed in part and disaffirmed in part.
If an infant chooses to disaffirm, they must ____
return anything that they received under the contract that still remains at the time of disaffirmance.
- However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.
Is being mistaken as two a minors age an exception to the defense of capacity?
NO!
Statutory exceptions to incapacity of minors
student loans, insurance contracts, and agreements not to reveal an employer’s proprietary information.
CL exception to incapacity of minors/mental incapacity/intoxicated persons
“Necessaries” are items necessary for subsistence, health, or education (including food, shelter, clothing, and medical care).
A minor may disaffirm a contract for necessaries but will be liable in ___
restitution for the FM value of benefits received.
An minor may ___, that is, choose to be bound by the contract in whole, upon reaching majority. A minor affirms either ___.
affirm
- expressly or by conduct, such as by failing to disaffirm the contract within a reasonable time after reaching majority.
One whose mental capacity is ___ may disaffirm when lucid or by a later appointed legal representative.
so deficient that they are incapable of understanding the nature and significance of a contract
Someone who had no mental capacity when they entered a contract may affirm during ____
a lucid interval or upon complete recovery, even without formal restoration by judicial action
A mentally incompetent person has no ability to contract once ____Any attempted contracts by an
incapacitated person who is under a guardianship are ___
a guardian has been appointed; void.
One who is so intoxicated that they don’t understand the nature and significance of their promise may be held to have made only a ___ if ____.
voidable promise; the other party had reason to know of the intoxication.
Contracts induced by duress or undue influence are ____
voidable and may be rescinded as long as they are not affirmed.
Generally, taking advantage of another person’s economic needs is not duress, but 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.
Defenses to enforcement/formation
- Lack of capacity
- Absence of Mutual assent
- Absence of Consideration
- Public Policy/illegality
- Unconscionability
- Statute of Frauds
Defenses going to ABSENCE OF MUTUAL ASSENT
- Misunderstanding—Ambiguous Contract Language
- Mutual Mistake as to Existing Facts
- Unilateral Mistake
- Mistake by the Intermediary (Transmission)
- Misrepresentation
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
A - Neither party aware = no contract unless both parties intended the same meaning (two ships peerless);
B. Both parties aware = no contract unless both parties intended the same meaning; or
c. One party aware = binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Ambiguity in the contract is one area where ___ is taken into account.
subjective intent
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:
- The mistake concerns a basic assumption on which the contract is made
- The mistake has a material effect on the agreed-upon exchange
- The party seeking avoidance did not assume the risk of the mistake
Mutual mistake is not a defense if the party asserting mistake as a defense ____
bore the risk that the assumption was mistaken.
-> This commonly occurs when one party is in a position to better know the risks than the other party
If the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied—even though the value of the subject matter is generally a basic assumption and the mistake creates a material imbalance—because ____
both parties usually assume the risk that their assumption as to value is wrong.
Generally, If only one of the parties is mistaken about facts relating to the agreement, the mistake will ____
not prevent formation of a contract
(exception to general rule) For a unilateral mistake if the nonmistaken party ____, the contract is voidable by the mistaken party.
knew or had reason to know of the mistake made by the other party
- As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange, and the mistaken party must not have borne the risk of the mistake.
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message ___ is operative unless ____
as transmitted; the other party knew or should have known of the mistake.
Fraud by inducement: If a party induces another to enter into a contract by using fraudulent misrepresentation (that is, by asserting information they know is untrue), the contract is ____
voidable by the innocent party if they justifiably relied on the fraudulent misrepresentation.
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.
A fraudulent misrepresentation need
not be spoken or written; it can be ___
inferred from conduct
Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as ___.
asserting the fact does not exist;
However, nondisclosure of a fact is not misrepresentation unless ____
it is material or fraudulent
A party is not entitled to relief if the reliance on a misrepresentation was ___. However, just because a misrepresentation could have been revealed by the exercise of reasonable care ____. Failure to read a contract or use care in reading it does not necessarily preclude a party from avoiding a contract for misrepresentation.
unreasonable under the circumstances; does not mean that reliance was unjustified
An innocent party that meet the requirement for misrepresentation doesn’t have to wait until they’re sued on the contract but may ____. In addition, they may ___
take affirmative action in equity to rescind
the agreement; pursue all remedies available for breach of contract
If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, ____
no contract exists. In this situation, one
of the promises is always illusory.
If the consideration or subject matter of a contract is illegal (for example, a contract to commit a murder), the contract is ___
void
Illegaility doesn’t void a contract where:
(1) the plaintiff is unaware of the illegality while the defendant knows of the illegality; (2) the parties are not in pari delicto (that is, one party is not as culpable as the other); or (3) the illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public.
If only the purpose behind the contract is illegal, the contract is voidable by a party who was ____
(1) unaware of the purpose; or (2) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
The concept of unconscionability allows a court to modify or refuse to enforce an entire contract or a provision in order to ____.
avoid “unfair” terms, usually due to some unfairness in the bargaining process (that is,
procedural unconscionability).
Unfair price alone is ___ for unconscionability.
not a ground
Common Instances of Procedural Unconscionability
- Inconspicuous Risk-Shifting Provisions
- Contracts of Adhesion—“Take It or Leave It”
- Exculpatory Clauses
- Limitations on Remedies
Courts have invalidated boilerplate Risk-Shifting Provisions provisions as unconscionable because they are ____
inconspicuous or incomprehensible to the average person, even if brought to their actual attention.
Courts will deem a clause unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from ____
any seller without agreeing to a similar provision.
An exculpatory clause releasing a contracting party from liability for their own ____ is usually found to be unconscionable because such a clause is against public policy in most states.
intentional wrongful acts
Exculpatory clauses for negligent acts may be found to be unconscionable if the clauses are ___, but they commonly are upheld if they are in contracts for activities that ___
inconspicuous; are known to be hazardous
A contractual clause limiting liability for damages to property generally will not be found unconscionable unless ____. But, a contract that limits a party to a certain remedy and that remedy fails of its essential purpose (for example, the contract limits remedies to
repair and the item cannot be repaired), the limitation may be___
it is inconspicuous; found unconscionable and courts will ignore it.
Unconscionability is determined by the circumstances as they existed at ___
the time the contract was formed.
If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may: ____
(1) refuse to enforce the contract; (2) enforce the remainder of the contract without the unconscionable clause; or (3) limit the application of any clause so as to avoid an unconscionable result.
Statute of frauds covers:
MY LEGS
- Marriage
- > 1 Year
- Land
- Executor
- Goods > $500
- Surety promises
A promise the consideration for which is ___ must be evidenced by a writing.
marriage (e.g., pre-nup), but doesn’t cover mere promise to marry (but no court would enforce)
A promise that by its terms cannot be performed within ____ is subject to the Statute of Frauds. Part performance does not satisfy the Statute of Frauds in this case.
one year (The date runs from the date of the agreement and not from the date of performance.)
Even if the contract can’t be performed within a year, _____ will remove it from the Statute.
full performance by one party
A promise to “employ until I die” or “work until I die” is ___ the Statute because ___
not within; it is capable of performance within a year—a person can die at any time.
A promise creating an interest in land must be evidenced by a writing. This includes:
- agreements for the sale of real property
- Leases for more than one year
- Easements of more than one year
- Mortgages and most other security liens
- Fixtures
- Minerals (or the like) or structures if they are to be severed by the buyer
Items that Do Not Create an Interest in Land
Contracts to build a building or to find a buyer for a seller (for example, a broker’s contract) do not create an interest in land.
Effect of Performance on Land Contracts subject to the SOF
Full performance by the seller will take the contract out of the Statute of Frauds. Part performance by the buyer may also remove the contract from the Statute.
SOF Equal dignity rule
the authorization to enter into a contract on behalf of someone else ONLY IF the underlying deal would be subject to the SOF
A promise by an executor or administrator to pay the estate’s debts out of ___ must be evidenced by a writing.
their own funds
A contract for the sale of goods for a price ____ is within the Statute of Frauds and generally must be evidenced by a signed writing to be enforceable.
of $500 or more
-> Note that a writing is sufficient even though
it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of goods shown in the writing.
A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be ____. However, if the main purpose or
leading object of the promisor is ____, the contract is not within the Statute of Frauds even though the effect is still to pay the debt of another
collateral to another person’s promise to pay,
and not a primary promise to pay; to serve a pecuniary interest of his own
Noncompliance with the Statute of Frauds renders the contract ____
unenforceable at the option of the party to be charged.
The party being sued may raise the lack of a sufficient writing (SOF) as an affirmative defense. If the Statute isn’t raised as a defense, it is __
waived
When Contract Is Removed from Statute of Frauds
- Contract modification
- Performance
- Circumstances When Writing Not Required
- Equitable and Promissory Estoppel
- Judicial Admission
A written contract can be modified orally, but the modification must be in writing if ____
the contract as modified falls within the Statute of Frauds.
Provisions Prohibiting Oral Modification - treatment under the CL/UCC
CL = even if a written contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract.
UCC = if a contract explicitly provides that it may
not be modified or rescinded except by a signed writing, that provision is given effect.
-> If the contract is between a merchant and nonmerchant, however, this provision requires the nonmerchant’s separate signature.
If the parties attempt to orally modify a contract that requires written modification (either because of a contract clause or the Statute of Frauds), it is technically ineffective as a modification but can ___
operate as a waiver = A waiver will be found whenever the other party has changed position in reliance on the oral modification.
- However, a party who makes a waiver affecting
an executory (not yet performed) portion of the contract may retract the waiver if they notify the other party that strict performance of the waived terms is required
If a seller ____ (that is, they fully perform), the seller can enforce the buyer’s oral promise to pay.
conveys property to the buyer
A buyer may seek to specifically enforce an oral land sale contract under the doctrine of part performance.
Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the Statute of Frauds. Most jurisdictions require ___
at least two of the following: payment (in whole or in part), possession, and/or valuable improvements.
Is an oral installment land contract subject to the 2/3 part performance rule:
No! In the absence of other facts,
such as a large down payment, possession plus payment does not unequivocally indicate a contract for the sale of land.
- Those facts are also consistent with a lease; thus, the purchaser cannot enforce the contract.
An oral contract that cannot be completed
within one year but has been fully performed by one party is ___
enforceable. (if not fully performed = not available, but may get restitution)
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 an oral sales contract is only partially paid for or accepted, the contract is enforceable only ___. But for a single good, partial payment takes ___
to the extent of the partial payment or acceptance (done on a commercial unit basis); full amount out of SOF
If goods are to be specially manufactured for the buyer and ____, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a ____
- are not suitable for sale to others by the seller in the ordinary course of their business
- substantial beginning in their manufacture or commitments for their purchase before notice of repudiation is received.
If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for sale was made, the oral contract is ____
enforceable without a writing
In contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a ____of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if:
- written confirmation
- (1) they have reason to know of the confirmation’s contents; and (2) they do not object to it in writing
within 10 days of receipt.
Merchants—Confirmatory Memo Rule gives power to ___ to enforce the contract
both the buyer and the seller (merchant using its own confirmation to satisfy the Statute of Frauds against another merchant)
Statute to defeat a meritorious claim. Examples include situations where ____
the defendant falsely and intentionally tells the plaintiff that the contract is not within the Statute or induces the plaintiff to change
position in reliance on an oral agreement.
There are three situations in which contracts are enforceable without the writing described above (pursuant to the SOF):
- Specially Manufactured Goods
- Admissions in Pleadings or Court
- Merchants—Confirmatory Memo Rule
- Equitable and Promissory Estoppel
Estoppel may be applied if it would be inequitable - Judicial Admission
The Statute of Frauds requires only one or more writings that:
- (1) reasonably identify the subject matter of the contract
- (2) indicate that a contract has been made between the parties, and
- (3) state with reasonable certainty the essential terms.
General Essential or Material Terms to be included in a writing complying with the SOF
The key is that there be something in writing evidencing the essential terms.
- What is essential depends on the agreement, its context, and the subsequent conduct of the parties, including the dispute that has arisen.
–> There must be enough in the writing to enable a 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.
Specific Essential or Material Terms to be included in a writing complying with the SOF for certain contract types
Land sale contracts = must contain a description
of the land and the price
Employment contracts = must state the length of employment
Sales of goods contracts (UCC) = must indicate
that a contract has been made and specify the quantity term
To use a writing against a party it must be ___ by them
signed! (can lead to disparities in enforceability)
A signature is ____.
any mark or symbol made with the intention to authenticate the writing as that of the signer
- It need not be handwritten; it can be printed or typed.
- Under the UCC, a party’s initials or
letterhead may also be sufficient.
- An electronic signature is also sufficient.
If a contract violates the Statute of Frauds, in almost all cases a party can ____
sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred.
When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an ____. Any other expressions—written or
oral—made prior to the writing, as well as any oral expressions contemporaneous with the writing, are ____
“integration”; inadmissible to vary the terms of the writing.
There are two components to whether a Writing is an “Integration”?
(1) whether the writing was intended as the final expression of the agreement; and (2) whether the integration was intended to be complete or partial.
-> Evidence is admissible to show the parties’ intent.
If an integration is complete, the writing cannot be ___. If, however, the integration is partial, the writing may ____
contradicted or supplemented; not be contradicted but may be supplemented by proving consistent additional terms.
The UCC presumes all writings are ___ integrations.
partial
A ___ recites that the agreement is the complete agreement between the parties.
merger clause
The presence of a merger clause is usually
determinative in ____. For most contracts, however, the modern trend is to ____
large commercial contracts; consider it as one factor in determining integration.
Because the rule prohibits admissibility only of extrinsic evidence that seeks to vary, contradict, or add to an “integration,” other forms of extrinsic evidence may be admitted if they won’t bring about this result, that is, they will fall outside the scope of the parol evidence rule. Including:
- Validity Issues
- Collateral Agreements and Naturally Omitted Terms
- Interpretation
- Showing of “True Consideration”
- Reformation
- Subsequent Modifications
- Additional Terms Under Article 2
A party to a written contract can attack the agreement’s validity. The party acknowledges (concedes) that the writing reflects the agreement but asserts, most frequently, that the agreement never came into being because of any of the following: (and this doesn’t violate the parol evidence rule)
- Formation Defects
- Conditions Precedent to Effectiveness
If a party asserts that there was an oral agreement that the written contract would ____, all evidence of the understanding may be offered and received without violating the PER.
not become effective until a condition occurred
Parol evidence is often said to be admissible if the alleged parol agreement is ____ to the written obligation (that is, related to the subject matter but not part of the primary promise) and ____
collateral; does not conflict with it.
The Restatements of Contracts allows parol evidence in that would naturally be omitted from the written agreement. A term would naturally be
omitted if:
(1) it does not conflict with the written integration; and (2) it concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument.
If there is ____, parol evidence can be received to aid the fact finder in reaching a correct interpretation of the agreement.
uncertainty or ambiguity in the written agreement’s terms or a dispute as to the meaning of those terms
The parol evidence rule will not bar extrinsic evidence showing the ____ paid
“true consideration” (such as evidence that the consideration stated in the contract was never paid).
If a party to a written agreement alleges facts (for example, mistake) entitling him to ____, the parol evidence rule is inapplicable.
reformation of the agreement
Parol evidence can be offered to show subsequent ____ of a written contract.
modifications
Article 2 generally follows the rules discussed above, providing that 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
find from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Article 2 also provides that a written contract’s terms may be explained or supplemented by evidence of ____—regardless of whether or not the writing appears to be ambiguous
course of performance, course of dealing, and usage of trade
Hierarchy of interpretation
1 - The contract itself
2 - Course of performance (Parties conduct under prior instalment of the CURRENT contract)
3 - Course of dealing (parties conduct in PRIOR contracts)
4 - Trade usage/customer (Industry norms that parties are aware of)
Contracts will be construed as a ____; specific clauses will be subordinated to the contract’s ___
“whole”; general intent.
The courts will construe words according to their ___ meaning unless it is clearly shown that they were meant to be used in a technical sense.
“ordinary”
If provisions appear to be inconsistent, ____ provisions will prevail over printed provisions
written or typed
The courts generally will try to reach a determination that a contract is ____
valid and enforceable.
Ambiguities in a contract are construed against ____, absent evidence of the intention of the parties.
the party preparing the contract
UCC Supplemental (“Gap-Filler”) Terms, cover (only need subject and quantity):
- Price
- Place of Delivery
- Timing of Shipment/Delivery
- Time for payment
- Assortment
Under the UCC If: (1) nothing has been said as to price; (2) the price is left open to be agreed upon by the parties and they fail to agree; or (3) the price is
to be fixed in terms of some standard that is set by a third person or agency and it is not set, then the price is _____
a reasonable price at the time for delivery.
Under the UCC If the place of delivery isn’t specified, the place usually is ____
the seller’s place of business, if they have one; otherwise, it’s the seller’s home.
Under the UCC If the time for shipment or delivery isn’t specified, shipment/delivery is due ____
within a reasonable time.
Under the UCC if the time for payment isn’t specified, payment is due ____
at the time and place at which the buyer is to receive the goods.
If a contract provides that an assortment of goods is to be delivered (for example, blouses in various colors and sizes) and doesn’t specify which party is to choose, the assortment is at the ____. If the party who has the right to specify the assortment doesn’t do so seasonably, the other party is ___
buyer’s option; excused from any resulting delay and may either proceed in any reasonable manner (for example, choose a reasonable assortment) or treat the failure as a breach.
Types of warranties
Express, Implied (by law)
Express Warranties include
Any affirmation of fact or promise made by the seller to the buyer, any description of the goods, and any sample or model creates an express warranty if the statement, description, sample, or model is part of the basis of the bargain.
For the statement, description, sample, or model to be a part of the basis of the bargain (and thus be an express warranty), it need only come at such a time that ___
the buyer could have relied on it when they
entered into the contract. (intent is not relevant)
-> The buyer does not need to prove that they actually did rely, although the seller may negate the warranty by proving that the buyer as a matter of fact did not rely.
A statement relating ____, doesn’t create an express warranty.
merely to the value of the goods, or a statement purporting to be only the seller’s opinion or commendation of the goods (mere puffery)
Implied in ___ contract for sale by a ____, there is a warranty that the goods are merchantable.
every; merchant who deals in goods of the kind sold
To be merchantable, goods must at least be ___
“fit for the ordinary purpose for which such goods are used.”
As in all implied warranty cases, it makes no difference that the seller ____. Implied warranties aren’t based on negligence but rather on ___ that is imposed on certain sellers.
didn’t know of the defect or that they couldn’t have discovered it; absolute liability
Implied Warranty of Fitness for a Particular Purpose: A warranty will also be implied in a contract for the sale of goods whenever ___
(1) any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; and
(2) the buyer in fact relies on the seller’s skill or judgment.
Warranty of Title
Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting.
-> Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting.
Warranty of Title applies to ___
any seller
Warranty Against Infringement
A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright, or similar claims.
-> But a buyer who furnishes specifications for the goods to the seller must hold the seller harmless against such claims
Warranty Against Infringement applies to
A merchant seller regularly dealing in goods of the kind sold
The title warranty can be disclaimed or modified only by ____
specific language or by circumstances that give the buyer notice that the seller does not claim title or that they are selling only such rights as they or a third party may have (for example, a sheriff’s sale).
The implied warranties of merchantability and fitness for a particular purpose can be disclaimed by ____
either specific disclaimers or general methods of disclaimer.
The warranty of merchantability can be specifically disclaimed or modified only by mentioning ___. If the sales contract is in writing, the disclaimer must be ____
merchantability; conspicuous.
The warranty of fitness for a particular purpose can be specifically disclaimed only by a ___ writing.
conspicuous (A written disclaimer is sufficient if it says, for example, “there are no warranties which extend beyond the description on the face hereof.”)
A term is conspicuous when it is ____
“so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it.”
Language in the body of a writing is conspicuous if: ____
(1) it is in larger type than surrounding text; (2) it is in a contrasting type, font, or color; or (3) it is set off from the text by marks that call attention to it.
Unless the circumstances indicate otherwise, the implied warranties of merchantability and fitness can be disclaimed by expressions such as ____ or other expressions that in common understanding call the buyer’s attention to the fact that there are no
implied warranties. Although this type of disclaimer ____, a hidden or fine-print disclaimer of this type is not effective.
“as is,” “with all faults,” (magic words); does not have to be conspicuous
Can you disclaim express warranties?
No!
If the buyer, before entering into the contract, has examined the goods or a sample or model as fully as they desire or has refused to examine, there is ____
no warranty as to defects that a reasonable examination would have revealed.
Implied warranties may also be disclaimed by the ___
course of dealing, course of performance, or usage of trade.
The UCC provides that words or conduct relevant to the creation of express warranties and words or conduct tending to negate such warranties shall wherever possible be construed as consistent with each other, but ____
“negation or limitation is inoperative to the extent that such construction is unreasonable.”
Parties ___ include in their contract a clause limiting the damages available in the case of breach of warranty. However, such a limitation won’t be upheld if it’s ___
may; unconscionable
Warranty disclaimers that limit damages for ___ caused by a breach of warranty on consumer goods are ____
personal injury; prima facie unconscionable.
To be effective, a disclaimer of warranty or limitation on remedies must be agreed to ____. Thus, although a few courts hold otherwise, most hold that a
warranty disclaimer or limitation on remedy included inside the packaging of goods is ____
during the bargaining process; not effective against the buyer.
Computer software often comes with terms that appear on the user’s computer screen during the installation process, and the purchaser must click to agree to the terms before installing. Such limitations and disclaimers typically are ____
upheld on the rationale that the purchaser can return the software if they disagree with the conditions.
Generally, the measure of damages for breach of any warranty is ____
the difference between the value of the goods accepted and the value of the goods as warranted, measured at the time and place of acceptance.
+ In addition, the buyer can recover appropriate
incidental and consequential damages.
If the warranty of title is breached, the goods are reclaimed by the true owner or lienholder, thus dispossessing the buyer. The buyer may then ____. The value of the goods accepted is deemed to be nothing; so the damages are ____
rescind the contract, revoke acceptance of the goods, or sue for damages; the value of the goods as warranted (generally purchase price)
If there are special circumstances, the value of the goods is measured at the time of the ____
dispossession rather than at the time of acceptance.
Determining to whom warranty liability extends beyond the initial buyer approach
Majority = the seller’s warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer’s home if it is reasonable to expect that the person may use, consume, or be affected by the goods and that person suffers personal injury because of a breach of warranty.
A contract’s delivery terms are important because they determine when ____ if the goods are damaged or destroyed.
risk of loss passes from the seller to the buyer
If the buyer has a right to reject the goods, the risk of loss doesn’t pass to the buyer until ____
the defects are cured or the buyer accepts the goods in spite of their defects.
If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested ___
on the seller from the beginning to the extent of any deficiency in the buyer’s insurance coverage.
Noncarrier Case: if the seller is a merchant, risk of loss passes to the buyer only when ____. If the seller is not a merchant, risk of loss passes to the buyer ____
they take physical possession of the goods; upon tender of delivery.
Tender of delivery means for non-merchant cases:
When buyer knows where the goods are and how to get them
There are two types of carrier cases:
shipment contracts and destination contracts.
If the contract authorizes or requires the seller to ship the goods by carrier but does not require them to deliver the goods at a particular destination, it is a ___ and risk of loss passes to the buyer when ____
shipment contract; the goods are delivered to the carrier.
In the absence of a contrary agreement, Article 2 presumes a contract is a ____ (shipment or destination)
shipment contract.
In a shipment contract, the seller must:
(1) make a reasonable contract with the carrier on behalf of the buyer; (2) deliver the goods to the carrier; (3) promptly notify the buyer of the shipment; and (4) provide the buyer with any documents needed to take possession of the goods.
If the contract requires the seller to deliver the goods at a particular destination it is a ___ contract, the risk of loss passes to the buyer when the goods are ___
destination; tendered to the buyer at the destination.
FAS stands for “free alongside.” The term is generally used only when goods are to be shipped by ___. Risk of loss passes to the buyer ___
boat; once the goods are delivered to the dock.
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.
A contract that doesn’t contain an FOB term or any other term explicitly allocating the risk of loss is a ____
shipment contract.
What type of contract based on FOB terms
- if seller’s city = shipping
- if any other city = destination contract
For the purpose of determining the risk of loss, a sale or return contract (meaning, the buyer takes goods for resale but may return them if they are unable to resell the goods) is treated as ___ for the risk of loss rules. If the goods are returned to the seller, the risk ____while the goods are in transit.
an ordinary sale; remains on the buyer
In a sale on approval (that is, the buyer takes goods for use but may return them even if they conform to the contract), the risk of loss does not pass to the buyer until ___. If buyer decides to return the goods, return is at the ___ risk.
they accept; seller’s
- If goods that were identified when the contract was made are destroyed ____ the contract is avoided (that is, the seller’s performance is
excused). - If the goods were not identified until after the contract was made, the seller in this situation would have to prove ____.
(1) without fault by either party and (2) before the risk of loss passes to the buyer,
impracticability.
As noted above, a buyer often bears the risk of loss before receiving the goods purchased. To aid buyers in this situation (and a few others) Article 2 gives buyers a special property interest in goods as soon as they are identified as the ones that will be used to satisfy the contract (for example, as soon as the seller sets them aside for the buyer). This special property interest is ___
insurable.
At common law, the contract includes the terms of the ____
last communication sent to the party who performed.
A contract may be formed by the parties’ performance where the mirror image rule isn’t satisfied and under certain circumstances under Article 2’s “battle of the forms” provision. In such
cases, under Article 2, the contract includes ___. Any necessary missing terms are ___
all of the terms on which the writings of both parties agree; filled in by the supplemental terms provided for in Article 2.
A party’s basic duty at common law is to ____ all that is called for in the contract
substantially perform
Article 2 generally requires a ___
perfect tender—the delivery and condition of the goods must be exactly as promised in the contract.
-> can reject the entire shipment (even if 1/00 is wrong)
Article 2 requires all parties to act in good faith, which is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.” This obligation ___ waived by the parties.
cannot be
Seller’s Obligation of Tender in Noncarrier Cases
The seller must put and hold conforming goods at the buyer’s disposition for a time sufficient for the buyer to take possession.
- The seller must give the buyer notice reasonably necessary to enable the buyer to take possession of the goods.
- The tender must be at a reasonable hour.
Seller’s Obligation of Delivery in Noncarrier Cases
In the absence of an agreement otherwise, the place of delivery generally is the seller’s place of business, or if he has none, his residence.
A carrier case is a sale in which, due either to the circumstances or to the express terms of the agreement, it appears that the parties intended that ___
a carrier be used to move the goods (inverse is true for non-carrier case)
Seller’s Obligation of Tender for carrier cases: Shipment Contracts—Where Seller Has Not Agreed to
Tender at Particular Destination
In the absence of an agreement otherwise, the seller need not see that the goods reach the buyer, but need only:
- Put the goods into the hands of a reasonable carrier and make a reasonable contract for their transportation to the buyer
- Obtain and promptly tender any documents required by the contract or usage of trade or otherwise necessary to enable the buyer to take possession, and
- Promptly notify the buyer of the shipment
Seller’s Obligation of Tender for carrier cases: Destination Contracts—Where Seller Has Agreed to
Tender at Particular Destination
If the contract requires the seller to tender delivery of the goods at a particular destination (for example, FOB buyer’s warehouse), the seller must, at the destination, put and hold conforming goods at the buyer’s disposition.
In noncarrier cases, unless the contract provides otherwise, a sale is for ___ and the price is due ___
cash; concurrently with tender of delivery.
Unless otherwise agreed, when goods are shipped by
carrier, the price is due ____
only at the time and place at which the buyer receives the goods.
-> In a shipment case the price is due when the goods are put in the hands of the carrier; and in a destination contract the price is due when the goods reach the named destination.
In an installment contract (that is, one that requires or authorizes delivery in separate installments), the seller may demand payment for ____, unless a contrary intent appears.
each installment if the price can be so apportioned
The buyer has a right to ___ 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.
inspect the goods
Buyer acceptance can be implied where they are
kept after reasonable time to inspect (even if they didn’t say they accept)
- Merely paying for goods u front is not acceptance
Tender of payment by check is ____. If a check is given, the buyer’s duty to pay is suspended until the check is either ___
- sufficient unless the seller demands cash and gives the buyer time to get it
- Paid or dishonored
–> If the check is paid, the buyer’s duty to pay is discharged.
–> If the check is dishonored, the seller may sue for the price or recover the goods.
A contract may provide that a party does not have a duty to perform unless some condition is fulfilled. In that case, the party’s failure to perform is justified if ____
the condition was not fulfilled.
A person is ___ if there has been an offer, an acceptance, and an exchange of consideration.
However, the contract may provide (impliedly or explicitly) that a party who is bound does not have a duty to perform ____
bound; unless or until some specified condition occurs.
A ___ is a commitment to do or refrain from doing something. If it is ____ the failure to perform according to its terms is a breach of contract.
promise; unconditional
“Condition” normally means either: ____
(1) an event or state of the world that must occur or fail to occur before a party has a duty to perform; or (2) an event or state of the world, the occurrence or nonoccurrence of which releases a party from their duty to perform.
A condition is a ___. There can be no breach of promise until the promisor is under an immediate duty to perform.
“promise modifier.”
The failure of a contractual provision that is only a condition is not ___, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.
a breach of contract
What determines whether a contract provision is a promise or a condition is the ___. In doubtful situations, most courts will hold that the provision in question is a ___.
“intent of the parties”; promise.
If a condition doesn’t occur that excuses a promisor’s performance, the promisor may __
waive the condition.
Words such as “provided,” “if,” and “when” usually
indicate a ___, whereas “promise” and “agree”
usually indicate a ____.
condition; promise.
____ normally refers to an explicit contractual provision.
“Express condition”
Many contracts include an express condition that a party will pay only if “satisfied” with the other party’s performance. Because it is a condition, the promisor is under no duty to pay unless ____
they are satisfied.
In contracts involving mechanical fitness, utility, or marketability (for example, construction or manufacturing contracts), a condition of satisfaction is fulfilled by a performance that would satisfy a ____
reasonable person. It is therefore immaterial
that the promisor was not personally satisfied if a reasonable person would have accepted and approved the performance tendered.
If the contract involves personal taste or personal judgment (for example, portraits, dental work), a condition of satisfaction is fulfilled only if the promisor is ____.
personally satisfied. But note: Even if a condition requires personal satisfaction, a promisor’s lack of satisfaction must be honest and in good faith.
When the satisfaction of a third person is a condition, most courts require the ___. However, the condition will be excused if the third person’s dissatisfaction is ____
actual personal satisfaction of that person; not honest and in good faith.
When it is clear that the purpose of a condition is to protect or benefit only one of the parties, the other party’s duty will ____
not be subject to the condition.
____ is one that must occur before an absolute duty of immediate performance arises in the other party.
A condition precedent
____ are those that are capable of occurring together, and that the parties are bound to perform at the same time (for example, tender of deed for cash).
Conditions concurrent
____ is one that, when it occurs, cuts off an already existing absolute duty of performance.
A condition subsequent
The most important and common implied condition is that the duty of each party to render performance is conditioned on ____
the other party either rendering their performance or making a tender of their performance.
Constructive (Implied) Conditions
- Constructive Conditions of Performance
- Constructive Conditions of Cooperation and Notice
- Order of Performance
Under a constructive condition of cooperation, the obligation of one party to render performance is impliedly conditioned on ____.
- Also, it’s often a condition to one party’s performance that the other party ____.
the other party’s cooperation in that performance
- give notice that the performance is due
An implied condition of notice is most commonly applied where a party ____ unless notice was given.
couldn’t reasonably be expected to know a fact (for example, need for repair) that triggered the duty to perform
The courts sometimes imply constructive conditions relating to the ___ for performing under the contract.
time/order
Order of Performance: Simultaneous Performance Possible
If both performances can be rendered at the same time, they are constructively concurrent
-> absent excuse, each party must first
tender their own performance if they wish to put the other under a duty of immediate performance that would result in breach if they fail to perform.
Order of performance: One Performance Takes Time
If one performance will take a period of time to complete while the other can be rendered in an instant, completion of the longer performance is a constructive condition precedent to execution of the shorter performance.
If a contract is not enforceable due to the failure or occurrence of a condition, and one of the parties has fully or partially performed, they can usually recover under ___
unjust enrichment theories (although the measure of damages in that case may be less advantageous
than the contract price)
A duty of immediate performance with respect to a conditional promise doesn’t become absolute until the conditions ____
(1) have been performed or (2) legally excused
Excuse of conditions can arise in a variety of ways:
- Excuse of Condition by Hindrance or Failure to Cooperate
- Excuse of Condition by Waiver or Estoppel
- Excuse of Condition by Actual Breach
- Excuse of Condition by Anticipatory Repudiation
- Excuse of Condition by Prospective Inability or Unwillingness to Perform
- Excuse of Condition by Substantial Performance
- Excuse of Condition by “Divisibility” of Contract
- Excuse of Condition by Impossibility, Impracticability, or Frustration
If a party having a duty of performance that is subject to a condition (that is, the party protected by the condition) prevents the condition from occurring, the condition will be excused if the prevention is ___
wrongful (they forfeit the protection of the condition)
One having the benefit of a condition under a contract may indicate by ___that they will not insist on that condition’s being met. Consideration is ___ for a valid waiver of condition.
words or conduct; not required
Whenever a party indicates they are waiving a condition before it is to happen, or they are waiving some performance before it is to be rendered, and the person addressed detrimentally relies on the waiver, the courts will hold this to be a ____
-> Note, however, that the promise to waive a
condition may be retracted at any time____
binding (estoppel) waiver; before the other party has changed their position to their detriment
When a condition doesn’t occur or a duty of performance is broken, the beneficiary of the condition or duty must make an election; they may: (1) terminate their liability, or (2) continue
under the contract.
-> If they choose to continue, they will be deemed to have waived the condition or duty, referred to as an ___.
election waiver
An election waiver requires neither ____ (although estoppel elements are often present). Note that an election waiver ____ withdrawn—even if the other party has not relied on it.
consideration nor estoppel; cannot be
If no consideration is given for the waiver, the condition must be ____ for the waiver to be effective.
ancillary or collateral to the main subject and purpose of the contract
-> In other words, you cannot “waive” entitlement to the entire or substantially entire return performance
In an installment contract, if a waiver isn’t supported by consideration, the beneficiary of the waived condition can insist on strict compliance with the terms of the contract for ____
(so long as there has been no detrimental reliance on the waiver) by ____
future installments; giving notice that he is revoking the waiver.
a waiver severs only the right to treat the failure of the condition as a ____ excusing counter-performance. However, the waiving party does not thereby waive her right to ____
total breach; damages.
An actual breach of the contract when performance is due will ____. Note, however, that counter performance will be excused at common law only if the breach is ___.
excuse the duty of counter performance; material (A minor breach may suspend this duty, but it won’t excuse it)
____ occurs if a promisor, prior to the time set for performance of their promise, indicates that they won’t perform when the time comes.
Anticipatory repudiation
Requirements of anticipatory repudiation
- applies only if there is a bilateral contract with executory (unperformed) duties on both sides.
- stems from the words or conduct of the promisor unequivocally indicating that he cannot or will not perform when the time comes.
In the case of an anticipatory repudiation, the nonrepudiating party has 4 alternatives:
- Treat the anticipatory repudiation as a total repudiation and sue immediately
- Suspend their own performance and wait to sue until the performance date
- Treat the repudiation as an offer to rescind and treat the contract as discharged
- Ignore the repudiation and urge the promisor to perform (but note that by urging the promisor to perform, the nonrepudiating party is not waiving the repudiation—they can still sue for breach and are excused from performing unless the promisor retracts the repudiation)
A repudiating party may at any time before their next performance is due ____ unless the other party has _____
withdraw their repudiation; canceled, materially changed their position in reliance on the repudiation, or otherwise indicated that they consider the repudiation final.
____ of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due.
Prospective failure
Prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be ____, whereas prospective failure to perform involves conduct or words that ___
unequivocal, merely raise doubts that the party will perform.
The effect of prospective failure is to allow the innocent party to ____.
If the other party fails to provide that, the innocent party may be ____
suspend further performance on their side until they receive adequate assurances that performance will be forthcoming; excused from their own performance and may treat the failure to provide assurances as a repudiation
Adequate assurances should be requested in ___
writing.
Adequate assurances cannot ____
Modify the contract
Retraction of Repudiation: As with anticipatory repudiation, retraction is possible if the defaulting party regains their ability or willingness to perform. However, this fact must be ____ in order to be effective.
communicated to the innocent party
Generally, the condition of complete performance may be excused if the party has rendered ____
substantial performance.
-> It should be noted, however, that courts generally apply this doctrine only if a constructive (implied in law) condition is involved. They won’t apply it when there is an express condition for fear this would defeat the express intent of the parties.
Most courts won’t apply the substantial performance doctrine if the breach was ___
“willful.”
Even though the party who has substantially performed is able to enforce the contract, the other party will be able to ___
mitigate by deducting damages suffered due to the first party’s incomplete performance.
The doctrine of substantial performance doesn’t apply to contracts for the sale of goods because ____
perfect tender is generally required.
If a contract is divisible and a party performs one of the units of the contract, they are entitled to ____.
the agreed-on equivalent for that unit even if they fail to perform the other units. However, the other party has a cause of action for failure to perform the other units and may withhold their counter performance
for those units.
-> It isn’t a condition precedent to the other party’s liability that the whole contract be performed.
What Is a “Divisible” Contract? (that can be pro rated for how much is performed by excuse of condition)
Three tests must be concurrently satisfied to make a contract divisible:
a) The performance of each party is divided into two or more parts under the contract.
b) The number of parts due from each party is the same.
c) The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party, meaning each performance is the quid pro quo of the other.
–> Whenever you see a common law contract that contains a price per unit, you should immediately consider divisibility as an issue.
Like the common law, Article 2 assumes that a contract is not divisible unless____, in which case, the contract is called an installment contract. In These
contracts, the price, if it can be apportioned, ____ unless a contrary intent appears.
it authorizes deliveries in several lots; may be demanded for each lot
Conditions (like performance) may be excused by ____
impossibility, impracticability, or frustration of purpose
Once it is determined that a party is under an immediate duty to perform, the duty to perform must ___
be discharged.
The most obvious way to discharge a contractual duty is, of course, by ____. Good faith tender of performance ___ will also discharge contractual duties.
full and complete performance; made in accordance with contractual terms
Ways THE ABSOLUTE DUTY TO PERFORM may be
DISCHARGED?
- Discharge by Performance or Tender of Performance
- Discharge by Occurrence of Condition Subsequent
- Discharge by Illegality
- Discharge by Rescission
- Partial Discharge by Modification of Contract
- Discharge by Cancellation
- Discharge by Release
- Discharge by Substituted Contract
- Discharge by Accord and Satisfaction
- Discharge by Novation
- Discharge by Impossibility, Impracticability, or Frustration
- Discharge by Account Stated
- Discharge by Lapse
- Effect of Running of Statute of Limitations
The occurrence of a ___ will serve to discharge contractual duties.
condition subsequent
If the subject matter of the contract has become illegal ____, performance will be discharged.
due to a subsequently enacted law or other governmental act
- Note: If the illegality existed at the time the agreement was made, no contract was formed because of the illegality
Rescission will serve to discharge contractual duties. Rescission may be either ____
mutual or unilateral
The contract may be discharged by an ____ to rescind. -> The agreement to rescind is itself a binding
contract supported by consideration, namely, the giving up by each party of their right to counter performance from the other.
express agreement between the parties
If the rights of a third-party beneficiary have already
vested, the contract ____ by mutual rescission by the promisor and promisee
cannot be discharged
If the contract is unilateral (meaning only one party owes an absolute duty), a contract to mutually rescind where one party still has a duty to perform will ___
be ineffective.
For an effective rescission in a unilateral contract situation where the offeree has already performed, the rescission promise must be supported by one of the following:
- An offer of new consideration by the nonperforming
party - Elements of promissory estoppel, meaning detrimental reliance, or
- Manifestation of an intent by the original offeree to make a gift of the obligation owed them
A mutual agreement to rescind will usually be enforced when a bilateral contract has been ____. Whether that party will be entitled to compensation
_____
partially performed; depends on the terms of the rescission agreement.
Under CL mutual rescission may be made orally. This is so ____, unless the subject matter of the contract to be rescinded falls within the Statute of Frauds
(for example, transfer of land) or the contract is for the sale of goods.
even though the contract to be rescinded expressly states that it can be rescinded only by a written document
Article 2 requires a written rescission or modification if ____
the original contract to be rescinded or modified expressly requires a written rescission
For unilateral rescission to be granted, the party desiring rescission must have ___. If the nonassenting party refuses to voluntarily grant rescission, the other party may____.
adequate legal grounds. Most common among these are mistake, misrepresentation, duress, and failure of consideration.
file an action in equity to obtain it.
If a contract is subsequently modified by the parties, this will serve to discharge ____. It will not serve to discharge ____.
those terms of the original contract that are the subject of the modification; the entire contract.
Like the original agreement, an agreement modifying a common law contract requires ____. Courts usually
find consideration to be present because ____
mutual assent and consideration; each party has limited their right to enforce the original contract as is.
The destruction or surrender of a written contract will not usually, by itself, discharge the contract. If, however, the parties ____, it will usually have this
effect if consideration or one of its alternatives is present.
manifest their intent to have these acts serve as a discharge
A release and/or contract not to sue will serve to discharge contractual duties. The release or contract not to sue usually must be ____
in writing and supported by new consideration or promissory estoppel elements.
A contract may be discharged by a substituted contract. This occurs when the parties to a contract ____
enter into a second contract that immediately revokes the first contract expressly or impliedly.
Whether a second contract will constitute a substituted contract depends on whether the parties intend ____.
an immediate discharge or a discharge only after performance of the second contract
- If an immediate discharge is intended = there is a substituted contract.
If the parties intend the first contract to be discharged only after performance of the second contract, there is an executory accord rather than a substituted contract.
An ___ is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that they are supposed to receive from the other party, some other, different future performance.
accord
The accord, taken alone, ____; it ____ in accordance with the terms of the accord contract.
won’t discharge the prior contract; merely suspends the right to enforce it (can still sue pursuant to the original contract)
___ is the performance of the accord agreement. Its effect is to discharge not only the original contract but also the accord contract as well.
Satisfaction
In general, an accord must be supported by ___. Even if this is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if ____
consideration; the new consideration is of a different type or if the claim is to be paid to a third party.
The majority view is that a debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if ____
there is some “bona fide dispute” as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration.
If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by ____
a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt.
If the debtor breaches an accord agreement, the creditor may sue ____
either on the original undischarged contract or for breach of the accord agreement
If a creditor breaches an accord agreement by suing on the original contract, the debtor has two courses of action available:
(1) raise the accord agreement as an equitable defense and ask that the contract action be dismissed; or
(2) wait until they are damaged (meaning, the creditor is successful in their action on the original contract) and then bring an action at law for damages for breach of the accord contract
In an accord, the parties to an existing obligation agree to _____
-> if the accord’s agreed-to performance is carried out as promised (satisfaction), the duty under the original contract is discharged; but if it is no carried out, the original contract remains enforceable
CF: in a modification, the parties to an existing obligation want to change their agreement so they ____.
-> The duties of the parties change immediately, and the original terms are no longer in effect and can no longer be enforced.
accept a different future performance in satisfaction of the original obligation.
agree to a different agreement
Accord and satisfaction is usually triggered by ____
a dispute of an amount due.
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 ____ the old contract
discharge
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.
The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract.
Where the nonoccurrence of the event was a ____ in making the contract and ____, contractual duties may be discharged.
basic assumption of the parties; neither party has expressly or impliedly assumed the
risk of the event occurring
For MBE purposes, the term “impracticability” includes both ____
impossibility and impracticability
- Impracticability = generally the term for goods
To discharge a duty pursuant to impracticability, the impossibility must be ____
“objective”; that is, the duties could not be performed by anyone.
To discharge a duty pursuant to impracticability, the impossibility must arise ___
after the contract has been entered into. (otherwise = contract formation issue)
If a contract is discharged because of impossibility, each party is ____. Either party may sue for ____
excused from duties arising under the contract that are yet to be fulfilled; rescission and receive restitution of any goods delivered, payments made, etc.
If the performance to be rendered under the contract becomes only partially impossible, the duty may be discharged ___
only to that extent. The remainder of the performance may be required according to the contractual terms.
Temporary impossibility ___ contractual duties.
suspends (it does not discharge them)
-> When performance once more becomes
possible, the duty “springs back” into existence unless the burden on either party to the contract would be substantially increased or different from that originally contemplated.
If a party partially performed before the impossibility arose, that party will have a right to recover in ____
quasi-contract at the contract rate or for the reasonable value of his performance if that is a more convenient mode of valuation.
Death or the physical incapacity of a person ___ serves to discharge it.
necessary to effectuate the contract
- If another person can do it = not excused
- Payor is not essential = estate can pay
___ may serve to discharge a contract. Many courts treat this as a form of impossibility.
Supervening illegality
If the contract’s subject matter is ____, contractual duties will be discharged.
destroyed or the designated means for performing the contract are destroyed
-> Note that destruction of the subject matter will render a contract impossible only if the very thing destroyed is necessary to fulfill the contract.
A contractor’s duty to construct a building is ____ by destruction of the work in progress. However, if the
destruction was not caused by the contractor, most courts will ___
not discharged; excuse the contractor from meeting the original deadline (but still has to perform at original contract price).
A contract ___ a building that is destroyed after work has begun is discharged (there is nothing left to repair), and to the extent the contractor has already performed, the contractor is entitled to ____.
to repair or remodel; recover in restitution for the value of the work done prior to the building’s destruction.
The rules relating to discharge because of destruction of the subject matter will not apply if ___
the risk of loss has already passed to the buyer.
The test for a finding of impracticability is that the party to perform has encountered:
- Extreme and unreasonable difficulty and/or expense, and
- Its nonoccurrence was a basic assumption of the parties.
Article 2 generally follows the above rules for impossibility and impracticability. If performance has become ____ the seller will be discharged to the extent of the impossibility or impracticability.
impossible or commercially impracticable,
Article 2 Generally, provides that the seller assumes the risk of ____. However, if it’s fair to say that if the parties would not have placed on the seller the risk of the extraordinary occurrence, ____
the occurrence of unforeseen events and must continue to perform; the seller will be
discharged.
Under the UCC Events sufficient to excuse performance include a shortage of raw materials or the inability to convert them into the seller’s product because of contingencies such as war, strike, embargo, or unforeseen shutdown of a major supplier. Catastrophic local crop failure (as opposed to a mere shortage) also is sufficient for
discharge. However, ___ are rarely sufficient for discharge unless they change the nature of the contract.
mere increases in costs (an increase in costs of more than 50% has been held to be insufficient.)
If the seller’s inability to perform as a result of the unforeseen circumstance is only partial, they must ____
allocate deliveries among their customers and, at their option, may include in the allocation regular customers not then under contract.
Frustration will exist if the purpose of the contract has become ____
valueless by virtue of some supervening event not the fault of the party seeking discharge.
-> If the purpose has been frustrated, a number of
courts will discharge contractual duties even though performance of these duties is still possible.
The elements necessary to establish
frustration are as follows:
- There is some supervening act or event leading to the frustration.
- At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring.
- The purpose of the contract has been completely or
almost completely destroyed by this act or event. - The purpose of the contract was realized by both parties at the time of making the contract. (BIG ONE)
A seller of land, goods, or services will raise ___
as a defense that discharges performance. By contrast, the party who is supposed to pay (usually the buyer) will raise ___ as a defense discharging performance.
impossibility or impracticability; frustration of purpose (paying money is never impracticable)
An ___ is a contract between parties whereby they agree to an amount as a final balance due from one to the other.
- This final balance encompasses a number of transactions between the parties and serves to ___
account stated; merge all of these transactions by discharging all claims owed.
If the duty of each party is a condition concurrent to the other’s duty it is possible that on the day set for performance, neither party is in breach and their contractual obligations ___. If the contract states
that time is “of the essence,” the lapse will occur ___; otherwise the contract will lapse after ___.
lapse; immediately; a reasonable time.
If the statute of limitations on an action has run, it is generally held that an action for breach of contract may be barred. Note, however, that only ___ are barred; the running of the statute does not ____.
judicial remedies; discharge the duties
If it is found that ____, then this failure to perform in accordance with contractual terms will amount to a breach of the contract.
(1) the promisor is under an absolute duty to perform, and (2) this absolute duty of performance has not been discharged
Under the CL once you have determined that there is a breach of contract, the next step is ___
to determine whether that breach is material or minor.
In determining whether a breach is material or minor under the CL, courts look at:
- The amount of benefit received by the nonbreaching party
- The adequacy of compensation for damages to the injured party
- The extent of part performance by the breaching party
- Hardship to the breaching party
- Negligent or willful behavior of the breaching party AND
- The likelihood that the breaching party will perform the remainder of the contract
A breach of contract is minor if the obligee ____. A minor breach does not relieve the aggrieved party of their duty of performance under the contract; it merely ____
gains the substantial benefit of their bargain despite the obligor’s defective performance; gives them a right to damages (setoff) for the minor breach.
If the obligee does not receive the substantial benefit of their bargain, the breach is considered ___.
material
If the breach is material, the nonbreaching party ____
(1) may treat the contract as at an end; that is, any duty of counterperformance owed by them will be discharged, and (2) will have an immediate right to all remedies for breach of the entire contract, including total damages
If a minor breach is coupled with ____, the nonbreaching party may treat it as a material breach. Indeed, the courts hold that the aggrieved party must not continue on, because to do so would be a failure to mitigate damages.
an anticipatory repudiation
In a divisible contract, recovery is available for ____ even though there has been a material breach of the entire contract.
substantial performance of a divisible part
Failure to perform by the time stated in the contract is generally not a material breach if ____
performance is rendered within
a reasonable time.
If the nature of the contract makes ____ then failure to perform on time is usually a material breach.
timely performance essential, or if the contract expressly provides that time is of the essence
-> Merely including a date for performance does not make time of the essence.
-> modern courts look at all of the circumstances to determine whether performance on the specified date was vitally important and whether the parties truly intended it to be so.
A buyer’s right to reject under the perfect tender doctrine generally is cut off by ____
acceptance
Under Article 2, a buyer accepts when:
- After a reasonable opportunity to inspect the goods, they indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to conform;
- They fail to reject within a reasonable time after tender or delivery of the goods or fail to seasonably notify the seller of their rejection; OR
- They do any act inconsistent with the seller’s ownership.
After rejecting goods in their physical possession, the buyer must not treat the goods as if they own them. The buyer has an obligation to:
hold the goods with reasonable care at the seller’s disposition for a
time sufficient to permit the seller to remove them.
If the seller has no agent or place of business within the market area where the goods are rejected, a merchant buyer has a further obligation to _____.
obey any reasonable instructions as to the rejected goods (for example, arrange to reship the goods).
If the seller gives no instructions within a reasonable time for what to do with rejected goods, the buyer may ____
(1) reship the goods to the seller, (2) store them for the seller’s account, or (3) resell them for the seller’s account in a public sale or a private sale after giving the seller reasonable notice of the intent to resell.
If the buyer properly resells the rejected goods, they are entitled to recover ____.
If the buyer wrongfully exercises ownership over the rejected foods, the seller has ____
their expenses and a reasonable commission; an action against the buyer for conversion.
Once goods are accepted, the buyer’s power to reject the goods generally is ____ and the buyer is obligated to pay ___
terminated; the price less any damages resulting from the seller’s breach.
The buyer may revoke their acceptance of goods if:
- the goods have a defect that substantially impairs their value to the buyer, and
- 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 assurance that the goods conformed to the contract.
Revocation of acceptance of goods must occur: ____
(1) within a reasonable time after the buyer discovers or should have discovered the defects; and (2) before any substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession.
Exceptions to the Perfect Tender Rule
- Seller’s Right to Cure
- Installment Contracts
If the buyer has rejected goods because of defects, the seller may within the time ____ “cure” by giving ____ that the buyer must then accept.
originally provided for performance; reasonable notice of their intention to do so and making a new tender of conforming goods
Ordinarily, the seller has no right to cure beyond the original contract time. However, if the buyer rejects a tender of
nonconforming goods that the seller ____ the seller, upon a reasonable notification to the buyer, has a further reasonable time ____ within which to make a conforming tender
reasonably believed would be acceptable “with or without money allowance,”; beyond the original contract time
A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable (and thus get time beyond original contract for rejected foods) if the seller can show that ____
(1) trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or (2) the seller could not have known of the defect despite proper business conduct (for example, packaged goods purchased from a supplier).
In an installment contract situation under the UCC, an installment can be rejected only if ____. In addition, the
whole contract is breached only if ____
the nonconformity substantially impairs the value of that installment and cannot be cured; the nonconformity substantially impairs the value of the entire contract.
Sellers give warranties as to the condition of the goods that apply even ___ acceptance. Failure to live up to these warranties constitutes a breach of warranty, for which a remedy is available.
after
Two broad branches of remedies available in breach of contract situations
nonmonetary and monetary.
If the legal remedy (that is, money damages) is ____, the nonbreaching party may seek specific performance, which is an order from the court to the breaching party to ____
inadequate; perform or face contempt of
court charges
Specific performance is always available for ___ contracts, because ____. It is also available for goods that are ____
land sale; all land is unique; rare or unique at the time performance is due
Specific Performance is not available for breach of a contract to provide ____, even if _____
services; the services are rare or unique.
Even though specific performacne is unavailable a court may ____ a breaching employee from working for a competitor throughout the duration of the contract if ____
enjoin; the services contracted for are rare or unique.
Most courts will grant an order of specific performance to enforce a contract not to compete if:
(1) the services to be performed are
unique (thus rendering money damages inadequate); and (2) the covenant is reasonable.
For a covenant not to compete unique services to be reasonable it must:
- be reasonably necessary to protect
a legitimate interest of the person benefited by the covenant (that is, an employer or the purchaser of the covenantor’s business); - The covenant must be reasonable as to its geographic scope and duration (meaning, it cannot be broader than
the benefited person’s customer base and typically cannot be longer than one or two years); and - The covenant must not harm the public.
In addition to standard contract defenses, an action for specific
performance is subject to the equitable defenses of:
Laches: a claim that the plaintiff has delayed bringing the action and that the delay has prejudiced the defendant;
- Unclean hands—a claim that the party seeking specific performance is guilty of wrongdoing in the transaction being sued upon; and
- Sale to a bona fide purchaser—a claim that the subject matter has been sold to a person who purchased for value and in good faith.
Buyer’s Nonmonetary Remedies
- Cancellation
- Buyer’s Right to Replevy Identified Goods
- Buyer’s Right to Specific Performance
If a buyer rightfully rejects goods because they do not conform to the contract, one of her options is simply to ____
cancel the contract.
If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances:
1 - The seller becomes insolvent within 10 days after receiving the buyer’s first payment; or
2 - The goods were purchased for personal, family, or household
purposes.
-> In either case, the buyer must tender any unpaid portion of the purchase price to the seller.
If the buyer fails to make a payment due on or before delivery, the seller may ____.
withhold delivery of the goods
The buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is ____
unable to secure adequate substitute goods
A buyer has a right to specific performance “where the goods are ___ or in other proper circumstances.” The court may order specific performance
even where ___
unique; the goods have not yet been identified to the contract by the seller.
Seller’s Nonmonetary Remedies
- Seller’s Right to Withhold Goods
- Seller’s Right to Recover Goods
- Seller’s Ability to Force Goods on Buyer (limited)
The seller may also withhold goods when the goods are sold on credit and, ____. However, in such a case,
the seller must deliver the goods if the buyer ____
before the goods are delivered, the seller discovers that the buyer is insolvent; tenders cash for their payment.
If a seller learns that a buyer has received delivery of goods on credit while insolvent, the seller may reclaim the goods upon demand made ____. However, this time limitation does not apply if a misrepresentation of solvency has been made ____
within 10 days after the buyer’s receipt of the goods; in writing to the particular seller within 3 months before delivery.
The seller may stop delivery of goods in the possession of a carrier or other bailee if they discover that the buyer is ____. Of course, the seller must deliver the goods if the buyer ___
insolvent; tenders cash for their payment.
The seller may stop delivery of carload, truckload, planeload, or larger shipments of goods if the buyer ____
breaches the contract or the seller has a right to withhold performance pending receipt of assurances.
The seller’s ability to force goods on a buyer is limited to an action for price when the seller is ____
unable to resell the goods to others at a reasonable price.
Actions or circumstances that increase the risk of nonperformance by a party to a contract but don’t ___ may not be treated immediately as an anticipatory repudiation
clearly indicate that performance will not be forthcoming;
if there are reasonable grounds for insecurity (but there is not a clear indication performance will not be forthcoming) with respect to a party’s performance, the other party may ____. Until they receive this, the party may ____.
demand in writing assurances that the performance will be forthcoming at the proper time; suspend their own performance.
If the proper assurances are not given within a reasonable time (that is, within ____), they may then treat the contract as ____.
30 days after a justified demand for assurances; repudiated.
What constitutes an adequate assurance depends on ____.
the facts of the case
Damages can be recovered only to the extent they can be proved with _____
reasonable certainty and could not be avoided with reasonable effort.
The usual goal of compensatory damages for breach of contract is to put the nonbreaching party in the position they ____
would have been in had the promise been performed, so far as money can do this.
In most cases, the plaintiff’s standard measure of damages will be based on an ____ measure.
“expectation” that is, sufficient damages for them to buy a substitute performance. This is also known as “benefit of the bargain” damages.
If the plaintiff’s expectation damages are ____ , the plaintiff may elect to recover those damages they have suffered based on ____
too speculative to measure; their reasonable reliance on the contract
Reliance damages award the plaintiff the ___
cost of their performance; that is, they are designed to put the plaintiff in the position that would have been in had the contract never been formed.
Compensatory damages may also include ____ damages.
incidental
____damages are most commonly associated with contracts for the sale of goods and typically include expenses
reasonably incurred by a buyer in inspection, receipt, transportation,
care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the
seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach.
Incidental
____ damages are special damages and reflect losses over and above standard expectation damages.
Consequential
Consequential damages arise because of the nonbreaching party’s particular circumstances, and most often they consist of ____
lost profits.
Consequential damages may be recovered only if, ____
at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of a breach. (Foreseeability is the key issue for consequential damages)
-> the breaching party must have known or had reason to know of the special circumstances giving rise to the damages.
In contracts for the sale of goods, only a ____ may recover consequential damages.
buyer
The plaintiff must prove that the losses suffered were certain in their nature and ____
not speculative.
Traditionally, if the breaching party prevented the nonbreaching party from setting up a new business, courts would not award lost profits from the prospective business as damages, because they were too speculative.
However, modern courts may allow lost profits as damages if they can be made more certain by ____
observing similar businesses in the area or other businesses previously owned by the same party.
____ damages are generally not awarded in contract cases.
Punitive
____ damages may be awarded when a breach is shown but no actual loss is proven.
Nominal (token)
The parties to a contract may stipulate what damages are to be paid in the event of a breach. These ____ damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach.
liquidated
Liquidated damage clauses will be enforceable if the following two requirements are met:
- Damages for contractual breach are difficult to estimate or ascertain at the time the contract is formed; AND
- The amount agreed on is a reasonable forecast of compensatory damages in the case of breach.
-> The test for reasonableness is a comparison between the amount of damages prospectively probable at the time of contract formation and the liquidated damages figure.
If the liquidated damages amount is unreasonable, the courts will construe this as a ____ and will not enforce the provision.
penalty
If the requirement for a liquidated damages clause are met, the plaintiff will receive the liquidated damages amount. Most courts hold this is so even if ____
no actual money or pecuniary damages have been suffered.
If the seller doesn’t deliver, or the buyer properly rejects the goods or revokes acceptance of the goods, the buyer’s basic damages consist of the difference between the contract price and either: ____, plus ____, less ___
(1) the market price or (2) the cost of buying replacement goods (cover), plus incidental and consequential damages,
if any, less expenses saved as a result of the seller’s breach.
If the buyer of goods chooses the cover measure (the difference between contract price and cost of buying replacement goods), the buyer must ____
make a reasonable contract for substitute goods in good faith and without unreasonable delay (don’t need to get exactly at prevailing market prive)
Under the UCC the buyer’s damages are measured as of the time ___, while the seller’s damages are measured as of the time ____
they learn of the breach; for delivery.
If the buyer accepts goods that breach one of the seller’s warranties, the buyer may recover as damages “loss resulting
in the normal course of events from the breach.” The basic measure of damages in such a case is ____
the difference between the value of the goods as delivered and the value they would have had if they had been according to contract (not market value), plus incidental and consequential damages.
To recover damages for any defect as to accepted goods, the buyer must, within a reasonable time after they discover or
should have discovered the defect, ____
notify the seller of the defect. If they do not notify the seller within a reasonable time, they lose their right to sue.
Under the UCC the measure of damages when the seller anticipatorily breaches the contract is the difference between ____
the market price at the time the buyer learned of the breach and the contract price.
Under the UCC 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.
For consequentialist damages under the UCC if the buyer is in the business of reselling the goods, the seller
is deemed to ___
have knowledge of the resale.
For consequentialist damages under the UCC if a seller knows that the goods they provide are to be used in the manufacturing process, they should know that their breach would cause ____
a disruption in production leading to a loss of profits.
The Code provides three measures for damages for when the buyer wrongfully repudiates or refuses to accept conforming goods. In addition to incidental damages (for example, costs of storing, shipping, reselling), the seller can:
(1) Resell the goods and recover the difference between the contract price and the resale price
(ii) Recover the difference between the market price (measured as of the time and at the place of delivery) and the contract price, or
(iii) If the above measures are inadequate because the seller could have made an additional sale, recover under a “lost profits” measure the difference between the contract price and the cost to the seller.
Other damages measures will never be adequate if the seller is a ____
lost volume seller.
To determine whether the lost profits measure is appropriate, look at the seller’s supply. If the seller’s supply of goods is ___ , then they are a lost volume
seller, and the lost profits measure can be used.
unlimited(that is, they can
obtain all the goods they can sell)
If the buyer has accepted the goods and has not paid, or has not accepted the goods, and the seller is unable to resell
them at any reasonable price, or if the goods have been lost or damaged at a time the risk of loss was on the buyer, the seller may ____
maintain an action against the buyer for the full contract price.
For a seller of land the standard measure of damages for breach of land sale contracts is ___
the difference between the contract price and the fair market value of the land.
Breach by Employer: Irrespective of when the breach occurs—before performance, after part performance, or after full performance—the standard measure of the employee’s damages is ____
the full contract price
If an employee materially breaches an employment contract, the employer is entitled to recover ____. The breaching employee may offset money owed for ____
the cost of replacing the employee (that is, the wages the employer must pay to a replacement employee minus the breaching employee’s wages); work done to date.
When employment is at will (“permanent”), it may be terminated at any time for any reason. Thus termination of at-will employment by either party ____ in breach.
does not result
If a construction contract is breached by the owner, the builder will be entitled to ____. If the contract is breached after construction is completed, the measure is ____.
profits that would have resulted from the contract plus any costs expended; the full contract price plus interest.
If the contract is breached by the builder, the owner is entitled to ____. Most
courts allow the builder to offset or recover for ____ to avoid unjust enrichment of the owner.
the cost of completion plus reasonable compensation for the delay; work performed to date
If the breach on a construction by a builder is only late performance, the owner is entitled to ____.
damages incurred because of late performance.
When a building contract is not properly performed, the owner is entitled to the cost of ____. However, unless there is ____, a court will not order a remedy that results in undue economic waste.
fixing the defect; special significance attached to use of a particular item and that significance is communicated to the builder
If a contract calls for payments in installments and a payment is not
made, there is only a ___. The aggrieved party is limited to recovering ____
partial breach; only the missed payment, not the entire contract price.
-> However, the contract may include an acceleration clause making the entire amount due on any late payment, in which case the aggrieved party may recover the entire amount.
Under the common law, the nonbreaching party cannot recover
damages that could have been ____. Should they not do so, they will not be allowed to recover those damages that ___ after the breach.
avoided with reasonable effort; might have been avoided by such mitigation
Generally, a party may recover the ____ of mitigation.
expenses
If the breaching employer can prove that _____ was available, then contract damages against that breaching employer for lost wages will be reduced by the wages that the plaintiff would have received from that job.
a comparable job in the same locale
Generally, in a contract to manufacture goods, if the person for whom the goods are being manufactured breaches, the manufacturer is under a duty to mitigate by ____. However, if the facts are such that completion of the manufacturing project will ____, the manufacturer
has a right to continue.
not continuing work after the breach; decrease rather than increase damages
For Construction Contracts a builder does not owe a duty to avoid the consequences of an owner’s breach by ____, for example, but does have a duty to mitigate by ____. Again, however, if ____, it will be allowed.
securing other work; not continuing work after the breach; completion will decrease damages
Under Article 2, the rule of mitigation generally ____ apply. ____ damages are always available if the buyer does not cover or the seller does not resell.
does not; Market
Even though there is no duty to mitigate under the UCC the seller generally cannot bring an action against the buyer for the full contract price unless the ____
goods cannot be resold at a reasonable
price or were damaged or lost when the risk of loss was on the buyer.
As an alternative to the contract damages, ___ may be available in a contract-type situation.
restitution (not really part of contract law, but rather is a distinct concept)
Restitution is based on preventing ___ when one has conferred a benefit on another ___
unjust enrichment; without gratuitous intent.
Restitution can provide a remedy not only when ___
a contract exists and has been breached, a contract is unenforceable, and in some cases when no contractual relationship exists at all between the parties.
When a contract is unenforceable or no contract between the parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law contract, an action in ___, or an action for quantum meruit.
quasi-contract
Generally, the measure of restitution is the ____
value of the benefit conferred.
Restitution is usually based on the ____, recovery may also be measured by the ____ if the benefits are difficult to measure or the “benefit” measure would achieve an unfair result.
benefit received by the defendant; “detriment” suffered by the plaintiff
When a contract has been breached and the nonbreaching party hasn’t ___, they may choose to cancel the contract and sue for restitution to prevent unjust enrichment. Note that if the plaintiff
has ____, they are limited to their damages under the contract.
fully performed; fully performed
Under some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. If the breach was intentional, some courts ____; modern courts, however, will permit restitutionary recovery but limit it to ___
won’t grant the breaching party restitution; the contract price less damages incurred as a result of the breach.
If the buyer has paid part of the purchase price in advance and then breaches the contract, they can usually recover some of the payments. Unless the seller can prove greater damages, they may keep advance payments totaling ____. The balance must be returned to the buyer. If there is a valid liquidated damages clause, the seller need refund only ____
20% of the purchase price or $500, whichever is less; the excess of the buyer’s payments over the amount of liquidated damages.
Restitution may also be available in a quasi-contract action when there is no contractual relationship between the parties if:
- The plaintiff has conferred a benefit on the defendant by rendering services or expending properties;
- The plaintiff conferred the benefit with the reasonable expectation of being compensated for its value;
- The defendant knew or had reason to know of the plaintiff’s expectation; AND
- The defendant would be unjustly enriched if they were allowed to retain the benefit without compensating the plaintiff.
___ is a remedy whereby the original contract is considered voidable and rescinded. The parties are left as though a contract had never been made.
Rescission
The grounds for rescission must have occurred ____ was formed
either before or at the time the contract (not after!)
The grounds for recission are:
(i) Mutual mistake of a material fact
(ii) Unilateral mistake if the other party knew or should have known of the mistake
(iii) Unilateral mistake if hardship by the mistaken party is so extreme it outweighs the other party’s expectations under the
contract
(iv) Misrepresentation of fact or law by either party as to a material factor in the negotiations that was relied upon, and
(v) Other grounds, such as duress, undue influence, illegality, lack of capacity, and failure of consideration
Generally all ___ are available in a rescission action. Note that the plaintiff’s ___ isn’t a defense.
equitable defenses (including laches and unclean hands), negligence
If the plaintiff has paid money to the defendant, they are entitled to ___
restitution in addition to rescission.
____ is the remedy whereby the writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties.
Reformation
To reform a contract because of mistake, there must be:
(1) an agreement between the parties, (2) an agreement to put the agreement in writing, and (3) a variance between the original agreement and the writing.
If a writing is inaccurate because of a misrepresentation, the plaintiff
can choose between ___.
reformation and avoidance
To qualify for reformation, the misrepresentation must ____. Misrepresentations as to the ____ aren’t grounds for reformation; rescission and damages are the proper remedy for that
relate to the content or the legal effect of the record; subject matter of the agreement
Failure to read the record of the agreement ___ party from obtaining reformation.
doesn’t preclude a (In nearly every case in which the record doesn’t reflect the agreement, either one or both parties have failed to read it.)
The ___ rule isn’t applied in reformation actions. Likewise, the majority rule is that the ___ does not apply—but many courts will deny reformation if it would add ___.
parol evidence; Statute of Frauds; land to the contract
In addition to the general equitable defenses, the existence of a ____ is also a defense to reformation.
bona fide purchaser for value
Eeformation isn’t permitted if ____
the rights of third parties will be unfairly affected.
For sales contracts, the UCC provides for a ___ statute of limitations. The parties may shorten the period by agreement to no less than ___, but they can’t ___.
4-year; one year; lengthen it.
The statutory period begins to run when ____— that is, when breach occurs. The period begins to run regardless of whether ____
a party can bring suit; the aggrieved party knows about the breach.
For a breach of warranty action, the breach occurs and the limitations period begins to run upon ____. This is true even if the buyer ___
delivery of the goods; doesn’t discover the breach until much later
If there is an express warranty that explicitly extends to future performance
of the goods, the 4-year period doesn’t begin to run until ____
the buyer should’ve discovered the breach.
Entrusting goods to a merchant who ___ gives them the power (but not the right) to ____
deals in goods of that kind; transfer all rights of the entruster to a buyer in the ordinary course of business.
Entrusting includes both ____
delivering goods to the merchant and leaving purchased goods with the merchant for later pickup or delivery.
For entrusting buying in the ordinary course means buying ____
in good faith from a person who deals in goods of the kind without knowledge that the sale is in violation of the ownership rights of third parties.
Entrustment passes only the rights of the
____
entruster (that is, if the entruster isn’t the owner, ownership cannot pass)
Generally, if a sale is induced by fraud, the seller can rescind the sale and recover the goods from the fraudulent buyer (meaning, it is a voidable title). However, the defrauded seller may not recover the goods from ____
a good faith purchaser for value who bought from the fraudulent buyer.
If a thief steals goods from the true owner and then sells them to a buyer, the thief is ____
unable to pass title to the buyer (because their title is void).
A seller can transfer only the title they have or have power to transfer. Therefore, even a good faith purchaser
for value generally cannot cut off the rights of the true owner if the seller’s title was ___. An exception to this rule may apply, however, if the buyer has ____
void; made accessions (valuable improvements) to the goods or the true owner is estopped from asserting title (for example, if the true owner expressly or impliedly represented that the thief had title).
Only ___ beneficiaries have contractual rights, not incidental beneficiaries.
intended
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.
If promisee breaches, the third party beneficiary ___ enforce
cannot
There are two types of intended beneficiaries:
(1) a creditor beneficiary—
a person to whom a debt is owed by the promisee, and (2) a donee beneficiary—a person whom the promisee intends to benefit gratuitously.
A beneficiary may sue the ___ on the contract.
promisor
The promisor may raise against the third-party beneficiary any defense that ____
the promisor has against the promisee.
Whether the promisor may
use the defenses the promisee would have against the third-party
beneficiary depends on whether the promisor made ____.
an absolute promise to pay or only a promise to pay what the promisee owes the beneficiary
- If the promise is absolute, the promisor cannot assert the promisee’s defenses
- If the promise is not absolute, the
promisor can assert the promisee’s defenses.
A ___ beneficiary can sue the promisee on the existing obligation between them. They may also sue the promisor, but may obtain only ___
creditor; one satisfaction.
A donee beneficiary has ___ to sue the promisee unless grounds for a ___ remedy exist.
no right; detrimental reliance
A third party can enforce a contract only if their rights have ___
vested.
Third party beneficary right vest when they:
(1) manifest assent to a promise in the
manner requested by the parties
(2) bring a suit to enforce the promise; or (3) materially change position in justifiable reliance on the promise.
Prior to vesting of third party beneficiary right, the promisee and promisor are ___ the beneficiary’s rights under the contract without consulting the third
party.
free to modify or rescind (including removing the third-party beneficiary altogether)
Once the third party’s rights vest, the promisor and promisee cannot vary his rights without ___
his consent.
In the typical ___ situation, X (the obligor) contracts with Y (the assignor). Y assigns his right to X’s performance to Z (the assignee).
assignment
Generally, ___ contractual rights may be assigned. Exceptions to this include:
all
(1) an assignment that would substantially change the obligor’s duty or risk (for example, personal service contracts where the service is unique);
(2) an assignment of future rights to arise from future contracts (not
future rights in already existing contracts); and
(3) an assignment prohibited by law (including wage assignments in some states).
The effect of an assignment is to establish privity of contract between
___ while extinguishing privity between
the ___
the obligor and the assignee; obligor and the assignor.
Once the obligor has knowledge of the
assignment, they must ____
render performance to or pay the assignee.
If the obligor renders performance to or pays the assignor, they do so ___. Typically, one of the parties (usually the assignee) will ___.
at their own risk; notify the obligor of the assignment.
For an assignment to be effective, the assignor must
- manifest an intent to immediately and completely transfer their rights
- The right being assigned must be adequately described.
These things are not required for a valid assignmnent:
- A writing is usually not required to have an effective assignment.
- It is not necessary to use the word “assign”; any accepted words of transfer will suffice.
- A gratuitous assignment is effective; consideration is not required.
Assignments are divided into two categories:
assignments for value and gratuitous assignments.
An assignment is for value if it is:
(1) done for consideration,
or
(2) taken as security for or payment of a preexisting debt.
Assignments ____ cannot be revoked.
for value
An assignment not for value (a gratuitous assignment) generally is ___
revocable (but there are exceptions)
A gratuitous assignment is irrevocable if:
(1) the obligor has already performed;
(2) a token chose (that is, a tangible claim,
such as a stock certificate) is delivered;
(3) an assignment of a simple chose (that is, an intangible claim, such as a contract right) is put in writing; or
(4) the assignee can show detrimental reliance on the gratuitous assignment (that is, estoppel).
A revocable gratuitous assignment may be terminated by:
(1) the death or bankruptcy of the assignor;
(2) notice of revocation by the assignor to the assignee or the obligor;
(3) the assignor taking performance directly from the obligor; or
(4) subsequent assignment of the same right by the assignor to another.
A clause prohibiting assignment of “the contract” will be construed as ___
barring only delegation of the assignor’s duties.
A clause prohibiting assignment of “contractual rights” generally doesn’t bar ___, but rather merely ___
assignment; gives the obligor the right to sue for damages.
However, if the contract provides that attempts to assign ___, the parties can bar assignment
will be void
If the assignee has notice of the nonassignment clause (even if “void” langauge not used), an assignment will be ___
ineffective.
The assignee can sue the obligor, as the assignee is the ___. The obligor has as a defense against the assignee any defense ____. The obligor cannot raise by way of defense any defenses the assignor might have ____
real party in interest interest; inherent in the contract; against the assignee.
In every assignment for value, the assignor warrants that:
(1) they have not made a prior assignment of the same right; (2) the
right exists and is not subject to any undisclosed defenses; and
(3) they won’t interfere with the assigned right
-> The assignee may sue the assignor for breach of any of these warranties.
The assignor won’t be liable to the assignee if ____
the obligor is incapable of performing.
If the first assignment is revocable, a subsequent assignment ___
revokes it
The last gratuitous assignee prevails over ___ because ____
earlier gratuitous assignees; a later gift assignment revokes an earlier one.
Later assignment for consideration prevails if:
- Don’t know about the earlier assignment
- The first to get payment from or judgment against obligor
___ language is ineffective as an assignnent.
“promise”
In the typical ___ situation, Y (the obligor/delegator) promises to perform for X (the obligee). Y delegates their duty to Z (the delegate).
delegation
Generally, ____ duties may be delegated. Exceptions to this rule:
all
(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.
What Is Necessary for Effective Delegation?
The delegator must manifest a present intention to make a delegation.
-> There are no special formalities to be complied with to have a valid delegation (It may be written or oral)
A prohibition against assignment is construed as a prohibition against ___ as well
delegation
The obligee must accept performance from the delegate of ____.
all duties that may be delegated
The delegator ___ on the contract; thus, the obligee may sue the ___ for nonperformance by the delegate.
remains liable; delegator
The obligee may require the delegate to perform only if there has been an ____. This promise creates a contract between ____ in which the ___ is a third-party beneficiary.
assumption (that is, the delegate expressly or impliedly promises they will perform the duty delegated and this
promise is supported by consideration or its equivalent).
the delegator and the delegate; obligee
The obligee can sue the delegate only if ___
he receives consideration from the delegor.
___ substitutes a new party for an original party to the contract.
Novation
Novation requires ____.
assent of all parties
Novation ___the original
party.
and completely releases the original
party
