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CA Bar Rules > Contracts > Flashcards

Contracts Flashcards

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1
Q

HIGH

COMMON LAW vs. UCC

A

The gateway issue in all contracts and sales essay questions will be to determine whether the common law or Article 2 of the UCC governs:

  1. The common law governs if a contract deals with real estate or services;
  2. The UCC governs if a contract deals with goods.
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2
Q

HIGH

MIXED CONTRACTS: PREDOMINATE PURPOSE TEST

A

For mixed contracts (contracts that have elements of both services and goods,) the predominant purpose of the contract determines whether the common law or UCC governs

If the predominant purpose of the contract involves the purchase or sale of goods, the UCC applies.

If the predominant purpose of the contract involves services or real estate, the common law applies.

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3
Q

HIGH

CONTRACT FORMATION REQUIREMENTS

A

A traditional, enforceable contract is formed when there is:

  1. Mutual assent (an offer + valid acceptance of that offer);
  2. Consideration; AND
  3. No defenses to formation that would invalidate the otherwise valid contract.
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4
Q

HIGH

THE OFFER

A

To form an offer, the offeror must:

  1. Manifest a willingness to enter into an agreement; AND
    1. Objective Test. The offer is governed by an objective test, which means that outward appearances of words and actions are determinative – not subjective hidden intentions (e.g., If a person makes an offer as a practical joke with his fingers crossed behind his back but his outward words and actions demonstrate willingness to enter the agreement, it is a valid offer. The offeror’s subjective intent is irrelevant).
  2. Create a power of acceptance in the offeree.)
    1. Specific Offeree. Generally, an offer must be directed to a specific offeree. However, there is a limited exception for contest offers and reward offers that promise something to anyone who accomplishes a certain task (e.g., a posted sign that offers a cash reward for finding lost puppy is a valid offer)
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5
Q

HIGH

ADVERTISEMENTS AS OFFERS

A

An advertisement is usually considered an invitation to deal rather than an offer. This is because an advertisement usually fails to confer a power of acceptance to the other side.

However, advertisements that are very specific and leave nothing open to negotiation may constitute offers.

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6
Q

HIGH

TERMS REQUIRED IN THE OFFER UNDER THE COMMON LAW

A

Under the common law, all essential terms must be specified in the offer.

Generally, this includes the following four terms:

  1. Parties;
  2. Subject;
  3. Quantity; AND
  4. Price.
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7
Q

HIGH

TERMS REQUIRED IN THE OFFER UNDER THE UCC

A

Under the UCC, the law is more willing to plug the gaps. Unlike the common law, PRICE IS NOT REQUIRED in the offer. Generally, only three terms must be specified in the offer:

  1. Parties;
  2. Subject; AND
  3. Quantity.
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8
Q

HIGH

REQUIREMENTS AND OUTPUT CONTRACTS

A

Requirements and output contracts are valid under the UCC even though they do not specify an exact quantity.

In a requirement contract, the seller agrees to sell as much as the buyer would require.

In an output contract, the seller agrees to sell his entire production to the buyer.

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9
Q

HIGH

TERMINATING THE OFFER

A

If a valid offer is terminated at any time before acceptance, the offer is invalidated. It CANNOT be accepted or revived unless a new offer is made.

There are seven main ways that the offer can be terminated:

  1. The offeror can revoke the offer by express communication to the offeree at any time before acceptance;
  2. The offeree learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract;
  3. The offeree rejects the offer;
  4. The offeree makes a counteroffer;
  5. The offeror dies;
  6. A reasonable amount of time passes; OR
  7. The subject matter of the offer becomes illegal or is destroyed.
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10
Q

MED

OPTION CONTRACTS

A

The offeror is normally free to revoke his offer at any time prior to acceptance; however, option contracts are irrevocable. An option contract is an agreement where consideration is given in exchange for a promise to keep an offer open (e.g., “I promise not to revoke this offer for one week if you pay me an additional $100 to keep the offer open.”).

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11
Q

MED

FIRM OFFERS

A

The offeror is normally free to revoke his offer at any time prior to acceptance; however, firm offers are irrevocable.

Under the UCC, a merchant can make a firm offer to buy or sell goods, which will either last as long as stated in the offer or for a reasonable time period not to exceed 90 days. A firm offer must:

  1. Be in writing;
  2. Contain an explicit promise not to revoke; AND
  3. Be signed by the merchant.
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12
Q

MED

IRREVOCABLE OFFER: UNILATERAL CONTRACTS

A

Offeree has started performance. A unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance.

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13
Q

MED

IRREVOCABLE OFFER: DETRIMENTAL RELIANCE

A

An offer cannot be revoked if the offeree reasonably and detrimentally relies on the offer in a foreseeable manner.

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14
Q

HIGH

ACCEPTANCE

A

An acceptance is a manifestation of a willingness to enter into the agreement by the offeree (usually must be communicated to the other party - silence generally does not manifest willingness unless there is a past history of silence serving as acceptance).

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15
Q

HIGH

MASTER OF THE OFFER (+ MINOR ACCEPTANCE STUFF)

A

The offeror is the master of the offer, which means that the offeree MUST accept the offer according to the rules of the offer.

(1) For bilateral contracts, the start of performance manifests acceptance.
(2) For unilateral contracts, the start of performance only makes the offer irrevocable – the offer is only accepted once performance is complete.

[Acceptance is governed by an objective test, which means that outward appearances of words and actions are determinative – not hidden intentions (e.g., a person accepts an offer with his fingers crossed behind his back).

The offer must be specifically directed to the person trying to accept it – cannot accept an offer directed elsewhere (for open-to-all contests and reward offers, the person must know about the contest or reward offer in order to accept it.)]

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16
Q

HIGH

MAILBOX RULE

A

An ACCEPTANCE that is sent by mail, email, or fax is valid at the moment of dispatch (not when the letter is received), UNLESS:

  1. The offeree-sender uses the wrong address or has improper postage;
  2. The offeror expressly stipulates that the acceptance is valid upon receipt;
  3. An option contract is involved;
  4. The offeree-sender sends a termination letter BEFORE the acceptance letter; OR
  5. The offeror detrimentally relies on a termination BEFORE he receives the acceptance letter.
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17
Q

HIGH

COUNTER OFFER

A

A counteroffer operates as both a rejection that terminates the original offer AND as a formation of a new offer.

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18
Q

HIGH

MIRROR IMAGE RULE

A

Under the common law, the terms in the acceptance MUST match the terms of the offer exactly - otherwise it is not an acceptance, it is a counteroffer (i.e., the terms of the offer and acceptance must mirror each other exactly).

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19
Q

HIGH

UCC Sec. 2-207(1)

A

Under the UCC, the acceptance does NOT have to mirror the offer (i.e., the acceptance can include different or additional terms from those in the offer).

UCC Sec. 2-207(1) determines whether the purported acceptance (containing new terms) will operate as an acceptance or as a counteroffer. It states:

  1. A definite and seasonable expression of acceptance or written confirmation;
  2. Which is sent within a reasonable amount of time;
  3. Operates as an ACCEPTANCE even though it states terms additional to or different from those offered or agreed upon;
  4. UNLESS acceptance is expressly made conditional upon assent to the additional or different terms.
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20
Q

HIGH

UCC Sec. 2-207(2)

A

If the purported acceptance is a valid acceptance under UCC Sec. 2-207(1), the next issue is whether the additional or different terms in the acceptance will govern the contract or whether UCC gap fillers will be implemented.

Under UCC Sec. 2-207(2), the ADDITIONAL terms (nonconflicting terms) will govern the contract if BOTH parties are merchants UNLESS:

  1. The initial offer expressly limited acceptance to its terms;
  2. The additional terms materially alter the deal; OR
  3. The offeror objects to the additional terms within a reasonable amount of time.
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21
Q

HIGH

THE KNOCKOUT RULE

A

Most courts apply the knockout rule with UCC Sec. 2-207(2) to determine whether the new terms control or whether UCC gap fillers must be implemented. Under the knockout rule, a distinction is made between “different” and “additional” terms.

A different term is a term that was not included in the original offer that conflicts with the terms of the original offer (e.g., offeree changes the price term from $5,000 to $4,000 and sends it back to the offeror).

An additional term is a term that was not included in the original offer that does NOT conflict with the original offer (e.g., offeree adds a choice of law provision that was not included in the original offer and sends it back to the offeror).

Under the knockout rule, different terms in the original offer and acceptance knock each other out creating a gap in the contract. UCC gap fillers are then used to plug this gap (regardless of whether the parties are merchants).

The knockout rule does not apply to additional terms added by the offeree. UCCSec. 2-207(2) will determine whether the additional terms control or whether UCC gap fillers must be implemented.

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22
Q

MED

CONSIDERATION

A

To form a traditional, enforceable contract, the agreement must be supported by consideration. Consideration involves a transfer of legal value in a bargained-for exchange. Consideration is present if:

  1. The promisee incurs a legal detriment OR the promisor receives a legal benefit (most courts only focus on whether the promisee incurred a legal detriment irrespective of whether the promisor received a benefit); AND
  2. The promise induces the detriment AND the detriment induces the promise (i.e., a “bargained-for exchange”).
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23
Q

MED

EXAMPLES OF NOT CONSIDERATION

A

Gift promises are NOT consideration (e.g., A promises to give B his truck for free. Here, B incurs no legal detriment and A’s promise to give B his truck is not induced by any action or forbearance from B. This is a gift promise, not bargained-for consideration.).

Conditional gift promises are NOT consideration (e.g., A promises to give B his truck if B will drive 30 minutes away to pick the truck up from A’s house. Here, A’s promise to give B his truck is not induced by B coming to pick the truck up. Thus, A is not bargaining for B to come. This is a conditional gift, not bargained-for consideration.).

A pretense of consideration is NOT consideration (e.g., A and B are cousins. A wishes to give B his truck that is valued at $10,000 as a gift for B’s birthday. Attempting to form an enforceable contract, A “sells” B his truck for $1 solely to meet the consideration requirement. Here, A is not induced to give B his truck for the $1. This is merely a pretense of consideration, not bargained-for consideration.).

Preexisting legal duties are NOT consideration (e.g., A promises to pay B $100 if B refrains from smoking crack-cocaine for 6 months. Here, B already has a preexisting legal duty imposed by law to refrain from smoking crack-cocaine. Thus, B incurs no legal detriment, which means consideration is not present.).

Past consideration is NOT consideration (e.g., A’s truck catches fire as A is demonstrating the truck’s safety features to B. After the fire erupts, B rushes over and extinguishes the flames saving A’s life. Grateful, A promises to pay B $100 for the rescue. Here, B’s detriment (saving A’s life) was not induced by A’s promise. This is past consideration, not bargained-for consideration.).

An illusory promise is NOT consideration (e.g., A promises to buy B’s truck if “he feels like it.” Here, A is not committing to the deal. This is an illusory promise, not bargained-for consideration.).

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24
Q

HIGH

CONTRACT MODIFICATION UNDER THE

COMMON LAW

A

Under the common law, contract modifications MUST be supported by consideration. The common law follows the preexisting duty rule, which means that a promise to do something that you are already legally obligated to do (by contract or otherwise) is NOT consideration.

Watch out for this Bar Exam trick: Alex rents an apartment from Slumlord for one year at a rent of $1,500 per month. Later that year, Alex (running short on cash) and Slumlord both agree to modify the rent to $1,000 per month. Here, under the common law, Slumlord can sue Alex at the end of the month for the extra $500, because there was no consideration for the modification of the contract (Alex had a preexisting legal duty to pay the full $1,500).

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25
Q

HIGH

CONTRACT MODIFICATION UNDER THE UCC

A

Under the UCC, there is no consideration requirement to modify a contract. A contract modification is valid if it is made in good faith.

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26
Q

LOW

PROMISSORY ESTOPPEL

A

Promises that lack consideration may still be enforced under the doctrine of promissory estoppel if:

  1. The promisor should reasonably expect the promise to induce action or forbearance from the promisee;
  2. The promise does induce such action or forbearance to the promisee’s detriment; AND
  3. Injustice can be avoided only by enforcement of the promise.

NOTE: Under the restatement approach, the remedy granted for promissory estoppel may be limited as justice requires. Courts that follow the restatement approach usually limit the plaintiff’s recovery to the monetary value of the losses incurred in reliance on the promisor’s promise (i.e., reliance damages).

Promissory estoppel often arises in fact patterns where gift promises that lack consideration are made to charity organizations. Under the second restatement, a charitable subscription (i.e., a written promise) or a marriage settlement is binding without proof that the promise induced action or forbearance

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27
Q

LOWEST

QUASI-CONTRACT

A

Contracts that lack consideration may be enforced to avoid unfair results if:

  1. The plaintiff confers a measurable benefit on the defendant;
  2. The plaintiff reasonably expected to get paid; AND
  3. It would be unfair to let the defendant keep the benefit without paying.
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28
Q

lowest

MORAL OBLIGATION + SUBSEQUENT PROMISE

A

A few jurisdictions have some case law suggesting that a moral obligation plus a subsequent promise can be binding. Normally, this type of promise would be past consideration and thus nonbinding.

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29
Q

MED

DEFENSES TO CONTRACT FORMATION (list)

A
  1. Incapacity;
  2. Mistake;
  3. Misrepresentation;
  4. Duress and Undue influence;
  5. Illegality; AND
  6. Unconscionability.
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30
Q

lowest

INCAPACITY

A

A party must have capacity to enter into a contract. Minors (under 18) generally lack capacity per se.

Intoxicated persons receive protection only if the other side had reason to know of their intoxication.

If a party to a contract lacks capacity, the contract is voidable.

However, if the contract involves the purchase of necessaries, the party lacking capacity must still pay fair value for the necessaries.

A party lacking capacity can ratify the deal by keeping the benefits of the contract after capacity is obtained.

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31
Q

lowest

MUTUAL MISTAKE

A

A mutual mistake occurs when BOTH parties are mistaken as to a basic assumption on which the agreement is made. The adversely affected party may rescind the deal if:

  1. There is a mistake of fact, existing at the time that the deal is made;
  2. The mistake relates to a basic assumption of the contract;
  3. The mistake has a material impact on the deal; AND
  4. The impacted party did NOT assume the risk of mistake. (i.e. if he is aware at time of contract he only has limited knowledge regarding the facts or the risk is allocated to him by agreement of the parties)
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32
Q

lowest

UNILATERAL MISTAKE

A

A unilateral mistake is a mistake made by one party that is unknown to the other party. The adversely affected party may rescind the deal if:

  1. There is a mistake of fact, existing at the time that the deal is made;
  2. The mistake relates to a basic assumption of the contract;
  3. The mistake has a material impact on the deal;
  4. The impacted party did NOT assume the risk of mistake; AND
  5. The mistake would make the contract unconscionable OR the other side knew of, had reason to know of, or caused the mistake.
33
Q

LOW

MISREPRESENTATION

A

A misrepresentation is a statement made at the time of contracting that is not true. It can be intentional (fraudulent) or accidental. To assert this defense to contract formation, the party must show:

  1. A misrepresentation of a present fact (not opinion);
  2. That is material OR fraudulent (knowingly/reckless]) AND
  3. That is made under circumstances in which it is justifiable to rely on the representation.
34
Q

LOW

DURESS

A

Duress is an improper threat that deprives a party from making a meaningful choice to contract.

Contracts induced by duress are generally voidable.

35
Q

LOW

UNDUE INFLUENCE

A

Undue influence arises when a party’s assent is induced due to his susceptibility to pressure and the other side’s excessive use of pressure (usually voidable).

36
Q

lowest

ILLEGALITY

A

If the consideration or performance under a contract is illegal or contrary to public policy, the contract is void and will not be enforced. However, a legal contract entered in furtherance of an illegal purpose may still be enforced. (e.g., hiring an unsuspecting taxi driver to get somewhere in order to commit a murder)

37
Q

lowest

UNCONSCIONABILITY

A

If a contract is so unfair or oppressive to one party such that it shocks the conscience of the court, a court may find it unconscionable and refuse to enforce it. Some courts require both procedural unconscionability (defects in the bargaining process) and substantive unconscionability (terms of the deal are grossly one-sided) to refuse to enforce a contract.

38
Q

HIGH

TRIGGERING THE STATUTE OF FRAUDS

A

The following contracts are not valid unless they satisfy the statue of frauds:

  1. A contract made in consideration of marriage;
  2. A contract promising to guarantee the debt of another (Suretyship);
  3. A contract that by its terms cannot be performed within one year from its making;
  4. A contract involving the purchase or sale of goods for $500 or more; AND
  5. A contract to transfer, receive, or create an interest in real estate.
39
Q

HIGH

SATISFYING THE STATUTE OF FRAUDS WITH A WRITING

A

A writing will satisfy the statute of frauds if the writing:

  1. Is signed by the party to be charged;
  2. Shows that a contract was formed; AND
  3. Contains all the requisite terms of the deal.
40
Q

HIGH

SATISFYING THE STATUTE OF FRAUDS WITH PERFORMANCE OF A SERVICES CONTRACT

A

Full performance of a services contract by either side satisfies the statute of frauds.

41
Q

HIGH

SATISFYING THE STATUTE OF FRAUDS WITH PERFORMANCE OF A REAL ESTATE CONTRACT

A

Part performance of a real estate contract can satisfy the statute of frauds if any two of the following three are met:

  1. Buyer takes possession of the property;
  2. Buyer makes payment in full or part; AND/OR
  3. Buyer makes substantial improvements to the land.
42
Q

HIGH

SATISFYING THE STATUTE OF FRAUDS WITH PERFORMANCE OF A GOODS CONTRACT

A

Part performance on a goods contract satisfies the statute of frauds, BUT ONLY for the quantity received and accepted.

___________________________

  1. Admission in Court. Under UCC § 2-201(3)(b), the statute of frauds is satisfied if the party against whom enforcement is sought admits in his pleading, testimony, or otherwise in court that a contract for sale was made (the contract is not enforceable under this provision beyond the quantity of goods admitted).
  2. Written Confirmation between Merchants. Under UCC § 2-201(2), the statute of frauds is satisfied if:
    1. After an oral agreement between merchants;
    2. Either party sends a signed, written confirmation of the oral contract (must be signed by the sender); AND
    3. The written confirmation is received by the other merchant to the oral agreement; UNLESS
    4. The party receiving the written confirmation gives a written notice of objection within10 days after receipt of the written confirmation.
  3. Specially Manufactured Goods. Under UCC § 2-201(3)(a), the statute of frauds is satisfied when a seller makes a “substantial beginning” toward manufacture of custom goods that are to be specially made for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business under circumstances that reasonably indicate that the goods are for the buyer.
43
Q

MED

PAROL EVIDENCE RULE (PER)

A

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 integration. If the writing is not an integration (e.g., non-final expressions such as tentative drafts), the PER does not apply. Otherwise, an integration may be complete or partial:

If the writing completely expresses all of the terms of the parties’ agreement, then it is a complete integration. All other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are inadmissible.

If the writing sets forth the parties’ agreement about some terms, but not all the terms, then it is a partial integration. Other expressions or statements, written or oral, made prior to the writing, as well as any oral expressions made contemporaneously with the writing, are admissible to supplement the writing so long as the evidence does not contradict the terms of the writing.

44
Q

MED

MERGER CLAUSES

A

A merger clause recites that the agreement is the complete agreement between the parties. This is usually strong evidence that the writing is a complete integration for parol evidence purposes.

45
Q

MED

EXCEPTIONS TO THE PAROL EVIDENCE RULE (PER)

A

The PER does NOT apply if any of the following exceptions exist:

  1. Defenses. Extrinsic evidence may be offered to establish a defense to the formation or enforcement of a contract (e.g., incapacity, mistake, duress, lack of consideration, etc.).
  2. Separate Deals. Extrinsic evidence may be offered if it represents a distinct and separate contract.
  3. Condition Precedents. Extrinsic evidence may be offered if a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred.
  4. Ambiguity and Interpretation. Extrinsic evidence may be offered for the purpose of interpreting or clarifying an ambiguity in the agreement.

NOTE. The PER does NOT apply to agreements made between the parties AFTER the execution of the writing. Agreements made after the execution of the writing would be analyzed as contract modifications, and do NOT trigger the PER.

46
Q

LOW

EXPRESS WARRANTIES

A

Under the UCC, an express warranty is created when the seller makes any affirmation of fact or promise, description, or uses a sample or model as part of the basis of the bargain with the buyer.

Disclaimers that grossly conflict with express warranties are unenforceable. A seller is liable for breach of contract if she violates an express warranty.

47
Q

LOW

IMPLIED WARRANTY OF MERCHANTABILITY

A

Under the UCC, all merchants make an implied warranty (unless disclaimed) that the goods being sold are fit for their ordinary commercial purposes.

A merchant can disclaim the implied warranty of merchantability if the language used to disclaim is conspicuous. Language of “as is” or “with all faults” or language that puts the buyer on notice will be sufficient for disclaiming this warranty. The disclaimer may be made orally so long as the term “merchantability” is used.

If the buyer, before entering into the contract, has examined the goods or a sample as fully as the buyer desires, or has refused to examine the goods, then there is NO implied warranty of merchantability with respect to defects that an examination ought to have revealed to the buyer. Merchants are liable for breach of contract if the implied warranty of merchantability is violated.

48
Q

lowest

IMPLIED WARRANTY OF FITNES FOR A PARTICULAR PURPOSE

A

A warranty that the goods are fit for a particular purpose is implied whenever the seller has reason to know that the buyer has a particular use for the goods, and the buyer is relying upon the seller’s skill to select the goods.

The seller need NOT be a merchant for this warranty to apply. An implied warranty of fitness for a particular purpose can be disclaimed by general language (e.g., “as is”), but the disclaimer MUST be in writing and conspicuous. A party is liable for breach of contract if she violates the implied warranty of fitness for a particular purpose.

49
Q

MED

IMPLIED OBLIGATION OF GOOD FAITH AND FAIR DEALING

A

All contracts contain an implied obligation which requires the parties to a contract to act in good faith and deal fairly with one another without:

  1. Breaking their word;
  2. Using deceptive means to avoid obligations; OR
  3. Denying what the other party obviously understood.
50
Q

HIGH

PERFORMANCE UNDER THE COMMON LAW

A

Under the common law, substantial performance is required, which means that performance will be satisfied so long as there is NOT a material breach of the contract.

If there is a material breach, the non-breaching party’s performance is excused.

If the breach is not material, the non-breaching party’s performance is not excused.

51
Q

MED

PERFORMANCE UNDER THE UCC

A

Under the UCC, perfect tender is required, which means that a seller must deliver perfectly conforming goods in accordance with the terms of the contract. The smallest nonconformity is a breach that allows the buyer to reject all or a portion of the goods. If the seller fails to tender perfect goods, the buyer must give the seller a chance to cure the nonconformity if:

  1. The time for performance under the contract has not yet expired; OR
  2. The seller has reasonable grounds to believe that the buyer would accept a replacement for the nonconformity.
52
Q

MED

PERFORMANCE OF INSTALLMENT CONTRACTS UNDER THE UCC

A

Installment contracts (agreement for delivery in separate lots) do NOT have to satisfy perfect tender. The buyer can reject a specific installment delivery when there is a substantial impairment in the installment that cannot be cured.

53
Q

MED

REVOCATION OF ACCEPTANCE OF NONCONFORMING GOODS UNDER THE UCC

A

If a buyer fails to reject nonconforming goods after having had a reasonable opportunity to inspect the goods, the buyer is deemed to have accepted the goods.

The buyer may revoke his acceptance if:

  1. The nonconformity substantially impairs the value of the goods;
  2. The revocation occurs within a reasonable time after the buyer discovers or should have discovered the ground for nonconformity and before any substantial change in condition of the goods which was not caused by their own defects; AND
  3. The buyer accepted the goods: (a) on the reasonable assumption that the nonconformity would be cured and it has not been seasonably cured; or (b) without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.
54
Q

loest

IMPOSSIBILITY AND IMPRACTICABILITY

A

A party’s duty to perform under a contract is discharged if:

  1. An unforeseeable event occurs that makes performance extremely and unreasonably difficult or impossible;
  2. The nonoccurrence of the event was a basic assumption of the contract; AND
  3. The party seeking discharge was NOT at fault.

Look for these common fact patterns: (a) performance becomes illegal after the contract is formed; (b) the subject matter of the contract is destroyed; or (c) there is a services contract to hire a “uniquely skilled” individual who dies or becomes incapacitated.

55
Q

lowest

FRUSTRATION OF PURPOSE

A

A party’s duty to perform under a contract is discharged if:

  1. Unexpected events arise that destroy one party’s purpose in entering into the contract (even if performance of the contract is not rendered impossible);
  2. The event that arises is NOT the fault of the frustrated party; AND
  3. The nonoccurrence of the event was a basic assumption of the contract.

NOTE. The occurrence of the event need not be completely unforeseeable to the parties (it must be unexpected and not a realistic prospect).

56
Q

lowest

ACCORD AND SATISFACTION

A

A party is discharged from their obligations under a valid contract when there has been an accord and satisfaction.

An accord is an agreement between two contracting parties to accept alternate performance to discharge a preexisting duty between them.

The satisfaction is the subsequent performance of that accord. If satisfaction never occurs, the other side can sue on either the original obligation or the accord.

57
Q

lowest

NOVATION

A

A novation arises when BOTH parties agree that a substitute person will take over the contractual obligations. If there is a valid novation, the original promisor will be discharged from performance (the substitute becomes 100% liable for the performance).

58
Q

HIGH

ANTICIPATORY REPUDIATION UNDER THE COMMON LAW

A

Under the common law, anticipatory repudiation occurs when a promisor clearly and unequivocally repudiates a promise before the time for performance is due (by words or conduct). When an anticipatory repudiation occurs, the non-repudiating party may:

  1. Treat the repudiation as a breach and sue immediately for damages (however, if the date of performance has not passed and the only performance left is payment, the non-repudiating party must wait until performance is due and the actual breach occurs before filing suit); OR
  2. Ignore the repudiation, urge performance, and see what happens (however, if the repudiation is ignored, then continued performance by the non-repudiating party must be suspended if the performance would increase the damages of the repudiating party).
59
Q

HIGH

RETRACTION OF ANTICIPATORY REPUDIATION UNDER THE COMMON LAW

A

Under the common law, repudiation may be retracted until the promisee:

  1. Acts in reliance on the repudiation;
  2. Signifies acceptance of the repudiation; OR
  3. Commences an action for breach of contract.
60
Q

HIGH

ANTICIPATORY REPUDIATION UNDER THE UCC

A

Under the UCC, anticipatory repudiation occurs when: (a) the buyer or seller makes an unequivocal refusal to perform; or (b) reasonable grounds for insecurity arise regarding either party’s ability or willingness to perform, and the repudiating party fails to provide adequate assurances within a reasonable time [not to exceed 30 days] upon the non- repudiating party’s demand for such assurances.

When an anticipatory repudiation occurs, the non-repudiating party may:

  1. Treat the repudiation as a breach and sue immediately for damages (however, if the date of performance has not passed and the only performance left is payment, the non- repudiating party must wait until performance is due and the actual breach occurs before filing suit); OR
  2. Ignore the repudiation, urge performance, and see what happens (however, if the repudiation is ignored, then continued performance by the non-repudiating party must be suspended if the performance would increase the damages of the repudiating party).
61
Q

HIGH

RETRACTION OF ANTICIPATORY REPUDIATION UNDER THE UCC

A

Under the UCC, anticipatory repudiation may be retracted until the non-repudiating party cancels the contract or materially changes his position.

62
Q

HIGH

EXPECTATION DAMAGES

A

The goal of expectation damages is to put the non-breaching party in the same economic position that it would be in if the contract had been performed as promised.

Expectation damages are measured by comparing the value of the performance without the breach to the value of the performance with the breach.

63
Q

LOW

RELIANCE DAMAGES

A

The goal of reliance damages is to put the non-breaching party in the same economic position that it would be in if the contract had never been created.

Reliance damages restore the losses that the plaintiff incurred that would have never taken place but for the breached contract.

64
Q

LOW

RESTITUTION

A

The goal of restitution is to prevent unjust enrichment. Restitution gives the plaintiff an amount equal to the economic benefit that the plaintiff has conferred on the defendant.

65
Q

lowest

LIQUIDATED DAMAGES

A

Liquidated damages are set forth in the terms of the contract and expressly state an amount due upon breach. Courts are wary in awarding liquidated damages that are punishing in nature and will only do so if:

  1. The amount of liquidated damages was reasonable at the time of contracting; AND
  2. Actual damages from the breach would be uncertain in amount and difficult to prove.
66
Q

LOW

PUNITIVE DAMAGES

A

Punitive damages are awarded to punish the defendant. Punitive damages are rarely available in contract actions.

Some states allow punitive damages to punish fraud, violations of a fiduciary duty, or acts of bad faith.

Under the Second Restatement, punitive damages are NOT recoverable unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.

67
Q

lowest

SPECIFIC PERFORMANCE

A

Specific performance is awarded ONLY when monetary damages are considered inadequate to compensate the injured party. Specific performance is presumptively available for real estate transactions, and is presumptively NOT available for contracts of personal service.

68
Q

LOW

RESCISSION

A

Rescission is the cancelling of a contract so as to restore the parties to the positions they had before the contract was made.

Parties may seek to rescind a contract for a variety of reasons, such as mutual mistake, fraud, misrepresentation, or even unilateral mistake if the other party knew or should have known about the mistake.

Rescission can also occur by the mutual agreement of the parties.

69
Q

LOW

RIGHT OF RECLAMATION (INSOLVENCY)

A

When an insolvent buyer receives goods on credit, and the seller learns that the buyer is insolvent, the seller may reclaim the goods if a demand is made within 10 days after the buyer’s receipt of the goods. However, the 10-day limitation does NOT apply if the buyer misrepresented his solvency to the seller in writing within three months before delivery.

If the buyer pays with a check that is subsequently dishonored, then the seller may reclaim the goods following a demand made within a reasonable time.

70
Q

HIGH

DUTY TO MITIGATE DAMAGES

A

The plaintiff has a duty to take reasonable steps to mitigate (reduce) his losses. If the plaintiff fails to do so, the court will reduce the total damages by the amount that could have been avoided had the plaintiff taken reasonable steps to mitigate his losses.

71
Q

LOW

THIRD-PARTY BENEFICIARY CONTRACTS

A

An intended third-party beneficiary is not a party to the contract, but has rights under the contract because the two contracting parties are aware that their respective performances are intended to benefit the identified third-party. An intended beneficiary has the right to sue for breach of contract.

An incidental third-party beneficiary is not a party to the contract, but just so happens to benefit from the contract. An incidental beneficiary has no legal rights because the purpose of the contract was not intended to benefit them. An incidental beneficiary does not have the right to sue for breach.

72
Q

LOW

ASSIGNMENT

A

Generally, a party can assign rights and benefits, in whole or in part, under a contract to a third party UNLESS the contract explicitly prohibits or invalidates assignments.

If the contract prohibits assignments, then the assignor has breached the deal when he makes the assignment and is liable for damages; however, the assignment is still valid and enforceable by the assignee.

If the contract invalidates assignments, then the assignment is VOID and the assignee cannot enforce the assignment or recover. An assignee has the right to sue the obligor for non-performance.

However, any defense to enforcement that could be used against the assignor may also be used against the assignee. An assignee also has the right to sue the assignor for wrongful revocation of assignment or breach of an implied warranty.

73
Q

LOW

DELEGATION OF DUTIES

A

A delegation of duties occurs when a party “outsources” her duties under a contract to a third party. This is generally acceptable provided that:

  1. The contract does not prohibit delegation; AND
  2. The other party does not have some special interest in having a specific individual perform.
  3. Generally, a delegatee is not liable for breach unless she receives consideration from the delegating party.
74
Q

Conditions Subsequent vs Precedent

A
75
Q

Misrepresentation and Reformation

A
76
Q

Implied-In-Fact Contract

A
77
Q

Unilateral Offer Defintion

A

A unilateral offer arises from a promise that requests acceptance by an action of the promisee

78
Q

Bilateral Contract

A

A return promise.

CA Bar Rules (17 decks)

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