Contracts Flashcards
Was there an Offer?
Commitment- manifestation of present intent to be bound
Communicated to a Specific Offeree- or under the exception for reward offers
Containing definite and essential terms:
-C/L: requires parties, subject matter, price, and quantity
-UCC: quantity is the key term that typically must be specified. UCC gap fillers allow for other terms. Output and requirements are sufficiently definite
Advertisement? Usually treated as an invitation to receive offers from the public.
Unilateral Contract? Terms of offer require an act for acceptance, not a mere promise
Was the offer terminated?
Revocation by the offeror: express or constructive retraction; effective upon receipt.
-Irrevocable if detrimental reliance, option contract, or UCC merchants firm offer
-Revocation of unilateral offer not available once performance has begun.
Rejection by offeree: by words, conduct, or counteroffer; effective upon receipt
Lapse of time- if no time state, it lapses after reasonable period of time; reasonableness depends on a variety of factors (e.g. nature of the contract)
Operation of law- death, destruction of the subject matter or supervening illegality
Was the offer accepted? (Services)
C/L–Mirror Image Rule: Any change in terms by offeree will be a rejection and counteroffer
Mailbox Rule: Acceptance sent by mail is effective when sent unless:
a. Offeree accepts and later rejects- acceptance controls unless offeror has relied on rejection
b. Offeree rejects and later accepts- first received controls even if offeror hasn’t read it
Was the offer accepted? (Goods)
UCC– can accept by promise (UCC2-207) or performance
By promise: acceptance including a change in term is valid unless agreement to the changed terms is made a condition of acceptance; if not, terms are a proposal for change to the contract.
-Between Merchants; the new or different term controls unless:
a. the original offer limited acceptance to its terms;
b. they materially alter the offer; or
c. the offeror does not object within a reasonable time
d. knock-out rule: some states treat different terms as nullifying each other.
By performance: shipment of non-conforming goods is both an acceptance and a breach unless buyer is notified the goods were sent as an accommodation
Was the offer accepted? (Unilateral offer)
Unilateral offers require complete performance.
Offeree must know of and be motivated by offer; once started , the offeree is not bound to complete performance.
Promissory Estoppel
The doctrine of promissory estoppel (detrimental reliance) can be used under certain circumstances to enforce a promise that is not supported by consideration
Is there Consideration?
- Bargained-for-exchange? Mutuality of promises
Exceptions:
–Gifts: not bargained for; consider promissory estoppel
–Past Consideration: not bargained for; modern trend allows if needed to prevent injustice. - Of legal detriment? Minority rule; look for benefit or detriment
–Adequacy: promise to do or not to do something; performing or refraining from performing an act.
–Preexisting legal duty: insufficient unless giving something new or different
–Illusory promises: not valid unless required to act in good faith, e.g. upon satisfaction - Or a substitute?
–Promissory Estoppel/Detrimental Reliance: foreseeable, reasonable reliance
–Quasi-Contract: implied in law to avoid unjust enrichment; get value of benefit conferred.
Modification
Look for an offer to modify, acceptance of modification and consideration
C/L: requires additional consideration; must over-come the preexisting duty rule
UCC: requires good faith but no additional consideration
Parole Evidence Rule
Bars extrinsic evidence of prior or contemporaneous statements that contradict written agreement (if agreement is integrated)
Integrated writing: intended as final expression of the parties agreement; complete integration generally comes from merger clause in instrument; partial integration okay
UCC: more lenient application
-extrinsic evidence allowed to attack validity or explain terms
Express Warranty (UCC only)
Promise, description, or sample (but not opinion) that is the basis of the bargain (or deal)
–General disclaimer for an express warranty is not valid
Implied Warranty of Merchantability (UCC only)
Product fit for ordinary purpose (if merchant is the seller)
-must use term “merchantability”, and if in writing, the disclaimer must be conspicuous
-“as is” disclaimer valid so long as use terms “as is” or “with all faults” or use similar language that makes plain that there is not implied warranty of merchantability
Implied Warranty of Fitness for a Particular Use (UCC Only)
If seller knows and buyer relies
–must be in writing and be conspicuous
–“as is” disclaimer valid so long as use terms “as is” or “with all faults” or use similar language that makes plain that there is no implied warranty of fitness.
Defenses to Formation
- Mistake: mutual mistake as to basic assumption that materially affects performance
- Misunderstanding: each party attached different meanings to the same material term
- Misrepresentation/fraud: untrue assertion of fact
- Duress or undue influence: improper threat/influence that deprives meaningful choice
- Incapacity: due to age, mental illness or intoxication
Defenses to Enforcement
- Illegality: the consideration or performance is illegal
–a party unaware of the other party’s illegal purpose may still recover - Unconscionability: shocks the conscience in its unfairness at the time contract was made
- Public Policy: violates a significant public policy, such as restrains marriage, requires the commission of a tort, or unreasonably restrains trade.
- Statute of Frauds
Statute of Frauds
Statute applies to contracts involving:
Marriage, Sureties, One year, UCC goods over $500, Real estate. (M.SOUR)
To be satisfied: Needs to be in writing and signed by the party to be charged
If it has not been satisfied, is there an exception?
1. Full or part performance (goods delivered and accepted or combination of payment/possession/improvements to the land)
2. UCC specially manufactured goods
3. Merchant’s confirmatory memo
Third-Party Beneficiaries
Parties to a contract intend that performance by one party benefits a third party (who is not a party to the contract)
- Identify the 3PB - intended (can sue) or incidental (cannot sue on contract)
- Contract Modification - okay until rights are vested, otherwise 3PB notice and consent needed
- What are the 3PB rights? depends on 3PB status as donee (promise is a gift) or creditor
–Donee 3PB: generally may only sue promisor; may sue promisee if promisee tells 3PB about the contract and 3PB justifiabley relies to his detriment
Assignment
Right to contract benefit transferred to a third party after the contract has been formed.
- Was there an assignment? present tent to assign, no formalities needed
- Was it a proper assignment? it cannot increase a duty
- What are the rights/duties of the party? Assignee wil stand in the shoes of the assignor
Delegation
Duty to perform contract transferred to a third party after contract formed.
- Was there a delegation? look at the present intent to delegate; no formalities needed.
- Was it a proper delegation? Generally okay unless involving personal judgement or skill
- What are the rights/duties of the parties? Delegator still liable; delegatee cannot be compelled to perform unless he has assumed the duty (promise + consideration)
Conditions
Condition have to be excused or satisfied to obligate both parties to perform.
- Excuse conditions can occur by:
-Anticipatory Repudiation
-Prospective inability to perform
-Estoppel
-Waiver - Satisfy conditions by substantial or complete performance or because of a divisible contract
Discharge of duty
A duty must be discharged or performed to avoid being in breach.
- A duty will be discharged by:
-Modification
-Rescission
-Impossibility (due to death, incapacity, illegality, or destruction of the subject matter)
-Impracticability (unanticipated event causes extreme difficulty, proponent not at fault)
-Frustration of Purpose (unforeseeable event frustrate purpose; proponent not at fault)
-Accord and satisfaction (agreement to resolve disputed amount plus payment)
-Release/novation (both parties agree to change the obligation or party to the agreement)) - Performance must be substantial, complete, or perfect (if UCC, Perfect Tender rule)
Anticipatory Repudiation
If before the time performance is due, the party indicates it is unwilling or unable to perform; seek further assurances or, if futile, suspend performance.
Is there a breach? (Common Law)
Was there substantial performance?
- Material breach does not receive the substantial benefit of the bargain or is a minor breach with anticipatory repudiation; non-breaching party may suspend performance and pursue remedy.
- Minor breach receives substantial benefit of the bargain; must still perform.
Is there a breach? (UCC)
- Perfect Tender Rule: if goods or delivery are defective in any way, buyer can sue for breach
-If buyer rejects nonconforming goods, seller can cure if time for performance remains.
-Does not apply to installment contracts; apply substantial performance standard instead - Warranty– breach occurs when the goods fail to fulfill the terms of warranty
Expectation damages
Put the nonbreaching party in as good a position as performance would have done plus incidental and consequential damages (if reasonably foreseeable at the time of contracting), less mitigation of damages.
Situational depending on:
-UCC Buyer: market price minus contract price, or alternatively, cost to cover
-UCC Seller: full contract price plus incidental damages, or lost profits if lost volume seller
-Warranty: difference in value is measured at time/place of acceptance
