Contracts Flashcards
Applicable Law
Contracts for the sale of goods are governed by the Uniform Commercial Code (“UCC”). Goods are moveable, tangible items. Contracts for services or the sale of real property is governed by Common Law.
Merchants
The UCC has special rules for merchants. Merchants are those who regularly deal in the good subjects to the contract or have specialized knowledge of the goods.
For the purposes of the firm offer rule and the Statute of Frauds, a merchant includes not only a person who regularly deals in the type of goods involved in the transaction, but also any businessperson when the transaction is of a commercial nature.
Contract Formation
A valid contract requires an offer, acceptance, consideration, and no defense to formation.
Offer
A valid offer requires a present intent to be bound, certain and definite terms, and be communicated to an identifiable offeree.
Acceptance
An acceptance is an unequivocal assent to the terms of the offer made by one with the power of acceptance.
UCC conditional acceptance
Under the UCC, if acceptance is conditioned upon the offeror’s assent to the offeree’s additional terms, then it is not an acceptance, but rather a rejection and counteroffer.
Bilateral Contract
A bilateral contract is one in which there is a promise in exchange for a return promise or starting performance. A bilateral contract can be accepted by a return promise or starting performance.
Consideration
Consideration is a bargained for exchange of legal detriment or legal benefit.
UCC Additional Terms
Between merchants, additional terms become part of the contract unless they materially alter the contract, the offeror objects within reasonable time, or the offer is limited to its terms.
Perfect Tender Rule
Under the UCC, the seller must tender goods conforming to the contract terms. If the goods are nonconforming, then the buyer has the right to accept or reject all or part of the goods. If the buyer rejects the goods, they may suspend their performance. Further, the buyer has the right to inspect the goods before deciding whether to accept or reject. The rejection is valid so long as the buyer gives notice to the seller within a reasonable time before acceptance.
Failure to perfectly tender goods or delivery by the seller is considered a breach.
Implied Warranty of Merchantability
The implied warranty of merchantability requires that goods sold by a merchant with respect to goods of the kind sold be fit for their ordinary purpose and pass without objection in the trade under the contract.
Expectation Damages
Expectation damages put the non-breaching party in the place they would have been had the other party fully performed their obligations under the contract.
They are calculated by comparing the value of performance without breach (what was promised) with the market value of performance with breach (what was received) less any amount saved by the non-breaching party.
Expectation Damages: UCC Cover
Under the UCC, after a breach by the seller, the buyer may procure substitute goods, and “cover” by making in good faith and without unreasonable delay any reasonable purchase of substitute goods, which is measured by the difference between the contract price and the cost of cover.
Consequential Damages
Consequential damages are damages that naturally flow from the breach. In order to recover, the damages must be foreseeable, certain (i.e. not speculative) and unavoidable.
Incidental Damages
Incidental damages may be awarded to the non-breaching party as compensation for commercially reasonable expenses incurred as a result of the other party’s breach.
