Contracts Flashcards
Express Contract - Formation
Language (oral or written)
Implied Contract - Formation
Conduct
Quasi-Contract Defined
Not contract; when unenforceable contract > unjust enrichment
Bilateral Contract
Exchange of mutual promises; accepted in reasonable way
Unilateral Contract
Occurs when offeror indicates completion of performance is only manner of acceptance and where there is an offer to the public (like reward)
Offeror pays upon completion of requested act
Contract Formation - Rules - Ambiguities
Ambiguities in a contract are construed against the party preparing the contract
UCC Contracts - Apply To
Contracts for sale of goods (all things moveable to be sold)
Merchant – one who regularly deals in goods of kind sold or has profession that says they have special knowledge or skills re the practices/goods involved
Contract Formation - Requirements
Contracts require mutual assent, consideration, and no defenses
Contract Formation - Requirements - Offer
Creates power of acceptance in offeree, liability in offeror
Must create reasonable expectation that offeror willing to enter contract
Ask: expression of promise + certainty and definiteness + communication
Contract Formation - Requirements - Offer - Promise
Price quotes generally not offers unless respond to inquiry with quantity
Media > solicitation of offer; ads > mere invitations for offers
If only one party is bound to perform, promise is illusory
Contract Formation - Requirements - Offer - Certainty and Definiteness
Identification of offeree + certainty of subject matter
Requirements/output contracts > allowed if not unreasonable
Contract Formation - Requirements - Offer - Certainty and Definiteness - Land
Must identify land and price terms
Contract Formation - Requirements - Offer - Certainty and Definiteness - Goods
Quantity offered certain or capable of certainty
Contract Formation - Requirements - Offer - Certainty and Definiteness - Missing Terms
Missing terms – court can supply reasonable terms if intended to contract
* If price missing, UCC > reasonable price at time of delivery
* If time to perform missing > within a reasonable time
* BUT if material term is vague/ambiguous > not offer; too uncertain
Contract Formation - Requirements - Offer - Communication to Offeree
Offeree must have knowledge of offer
Contract Formation - Requirements - Offer - Termination - By Offeree
Lapse of Time (deadline or reasonable time)
Express rejection
Counteroffer (but inquiry wont terminate offer)
Effective upon receipt by offeror
Rejection/counter to option contract is NOT termination unless offeror detrimentally relied
Contract Formation - Requirements - Offer - Termination - By Offeror
Revocation (expressly or indirectly [info from reliable source])
Effective when received by offeree
Contract Formation - Requirements - Offer - Termination - By Offeror - Limitations on Revocation
Options – Offeree gives consideration to hold offer open
UCC – If merchant offers to buy/sell goods in signed writing and writing gives assurance it will be held open, not revokable for lack of consideration during time stated or a reasonable time (< 3 months)
If offeror reasonably expected offeree would rely to detriment and offeree does so rely, offer irrevocable as option for reasonable time
Unilateral contract – irrevocable once actual performance has begun
Bilateral contract – If indifferent re acceptance, start of performance means contract is complete and revocation is impossible
Contract Formation - Requirements - Acceptance - Who
Only the person to whom an offer is addressed has power of acceptance
Contract Formation - Requirements - Acceptance - Bilateral
May be accepted by promise or beginning performance
Acceptance must be communicated unless offer provides otherwise
Contract Formation - Requirements - Acceptance - Unilateral
Not accepted until performance is complete, notice of completion; no notice req if offeror waived or performance would come to attention
Contract Formation - Requirements - Acceptance - UCC
Offer buy goods for current/prompt shipment > promise or ship
Shipment of nonconforming goods > acceptance + breach
Battle of Forms Provision: Inclusion of different terms is effective as acceptance unless expressly made conditional on assent to these new terms
If any party not merchant > new terms do not become part w/o agree
If both parties merchants > additional terms included unless materially alter terms, offer limits acceptance, or offeror objects/ed to terms
Merchants memo confirming oral agreement w. dif terms subject to above
Contract Formation - Requirements - Acceptance - When Effective
Upon dispatch (mail) unless offer stipulates receipt
Rejection then acceptance is whichever arrives frist
Acceptance then rejection is acceptance unless rejection arrives first and offeror relies
Contract Formation - Requirements - Consideration
Bargained-for exchange of something of legal value
Promise must induce detriment and detriment induce promise
Act of forbearance must be of benefit to promisor
Contract Formation - Requirements - Consideration - Past Acts
Promise given in exchange for past acts DOES NOT count
Unless: past act benefitted & performed at promisors request OR response to emergency > promise to pay enforceable
Preexisting legal duty doesn’t count unless: new consideration, duty to third person, honest dispute re duty, or modify bc new circumstances
Contract Formation - Requirements - Consideration - Modification
Modification of a contract generally requires new consideration UNLESS;
Modification bc of unanticipated circumstances + fair/equitable OR contract is under UCC and done in good faith
Contract Formation - Requirements - Statute of Frauds - Requires
Writing w/ material terms signed by person to be held liable
Must ID subject matter, indicate between parties, and state essential terms with reasonable certainty
* For goods over $500 > quantity + D’s signature
* For services > material terms + D’s signature
Contract Formation - Requirements - Statute of Frauds - Subject Matters
Marriage – When marriage is consideration
Year – Performance impossible within one year from date of agreement
Land – Promises creating interest in land
Typically full performance removes SoF
* Executor – Exec/admin promises to pay estate debts
Goods – Goods over $500
* NOT REQUIRED IF: SWAP (specially made goods, written confirmation by merchant, admission in court, or performance)
Suretyship – Promise to answer for debt/default of another
Contract Formation - Requirements - Statute of Frauds - Modifications
Parties can orally modify contract even if contract reqs writing
UCC - Contract that reqs writing for modification is given effect
If parties try to orally modify contract that reqs writing, ineffective as a modification but can be waiver if other party changes in reliance
Contract Formation - Requirements - Statute of Frauds - Inapplicable To
Land sales – Two of three (payment, possession, improvement)
Service contract – Full performance
Sales of goods – Specially made goods, Merchant’s Confirmatory Memo, admission in court, or performance (or if goods paid for + accepted)
Estoppel – If inequitable to allow SoF defeat a meritorious claim
Contract Formation - Requirements - Statute of Frauds - Remedy for Breach
Even if void under SoF, party can sue for reasonable value of services/performance rendered or restitution of other benefit conferred
Contract Formation - Defenses - List
Lack of Capacity
Duress
Absence of Mutual Consent (misunderstanding, mistake)
Unconscionability
Statute of Frauds
Contract Formation - Defenses - Lack of Capacity
Under 18 – Cannot enter into contract binding on themselves
* Minor may choose to disaffirm a contract before reaching 18
* Minor may choose to affirm at 18 (express or by conduct)
* Contracts for necessary items > minor liable for value received
Mental incapacity – cant understand nature/significance of promise > voidable
Intoxicated – If cant understand nature/significance of promise > voidable
Contract Formation - Defenses - Duress/Undue Influence
Duress – Improper threats > voidable
Undue susceptibility to pressure + excessive pressure by other party > voidable
Contract Formation - Defenses - Absence of Mutual Consent - Misunderstanding
Misunderstanding – Contract w/ term with two+ possible meanings
* Neither party aware > no contract unless parties intend same meaning
* Both parties aware > no contract unless parties intend same meaning
* One party aware > binding contract on what ignorant party believed
Contract Formation - Defenses - Absence of Mutual Consent - Mistake - Mutual
Both parties mistaken about existing facts, voidable by adversely impacted party if:
* Mistake concerns basic assumption of contract
* Mistake has material effect on exchange
* Mistake re existence of subject matter > unenforceable
* Mistake re value of subject matter > enforcable
* Party seeking avoidance didn’t assume risk re mistake
Contract Formation - Defenses - Absence of Mutual Consent - Mistake - Unilateral
Invalidates contract if other party knew/had reason to know of mistake
Mistake must have material impact and party not born risk of mistake
Contract Formation - Defenses - Absence of Mutual Consent - Misrepresentation
Fraudulent misrepresentation > void if innocent relied on fraud
Material misrepresentation > void if innocent relies and was material
Material if induce reasonable person or this person to agree
Contract Formation - Defenses - Absence of Mutual Consent -Unconscionability
Requires: unfair surprise + oppressive terms when the contract was formed
Risk-shifting provisions > invalidated if inconspicuous or incomprehensible Contracts of adhesion > invalidated if unable to get w/o agreeing to provision
Exculpatory clauses >invalid if releasing liability for intentionally wrongful acts
Court can refuse to enforce, enforce remainder, or limit application of clause
Contract Interpretation - Parole Evidence Rule
When parties have written contract w/ intent that it be final expression > integration (intended as final expression of agreement + intended to be complete)
Other expressions made prior or oral expressions contemporaneous w/ writing are inadmissible to vary terms of the writing
Contract Interpretation - Parole Evidence Rule - Partial Integrations
Writing may be supplemented w/ consistent add’tl terms
UCC presumes all writings are only partial integrations
Contract Interpretation - Parole Evidence Rule - Evidence Outside of Rule
Validity issues: formation defects (fraud, duress, etc.) or conditions precedent to effectiveness.
Naturally omitted terms doctrine – allows evidence of terms that would naturally be omitted (does not conflict with writing + concerns a subject that parties would not ordinarily be expected to include in writing)
Interpretation: to aid in reaching clarity as to meaning of uncertain terms
Showing true consideration paid
Facts entitling person to reformation of contract (like mistake)
Subsequent modifications of written contract
UCC: Adding consistent additional terms; explain terms by evidence of performance, course of dealing, and usage of trade
Contract Interpretation - UCC - Gap Filler Terms
Price – Reasonable price at time for delivery
Place of delivery – Seller’s place of business
Time for shipment/delivery – Reasonable time
Time for payment – Time and place at which buyer is to receive goods
Contract Interpretation - UCC - Warranties - Express
Any affirmation of fact or promise, description, sample creates express warranty if part of basis of the bargain (buyer may have relied)
BUT NOT: Statements of value or opinion
Contract Interpretation - UCC - Warranties - Implied - Implied Warranty of Merchantability
Implied in contract for sale by merchant who deals in that kind of good
Good must be fit for ordinary purpose for which such goods are used
Disclaimer – Only by mentioning merchantability; must be conspicuous
Contract Interpretation - UCC - Warranties - Implied - Implied Warranty of Fitness for a Particular Purpose
Buyer comes in with special purpose, seller knows, seller picks item to meet buyer’s purpose, buyer is relying on them to select, & seller knows
Seller does not need to be a merchant
Disclaimer – Only be a conspicuous writing
Contract Interpretation - UCC - Warranties - Disclaimer
Implied warranties can be disclaimed by specific disclaimers or general
UCC: “As is” language; course of dealing; usage of trade
Must be agreed to during bargaining process
Contract Interpretation - UCC - Warranties - Buyer’s Damages for Breach
Parties may include clause limiting damages for breach of warranty
Generally: Difference between goods tendered and as warranted
Contract Interpretation - UCC - Delivery Terms - Risk of Loss
If agreement allocates risk, the agreement controls
If party breaches, breaching party liable even if unrelated
If buyer right to reject > risk of loss passes if defects cured or buyer accepts
If buyer revokes acceptance > risk of loss on seller from beginning
Contract Interpretation - UCC - Delivery Terms - Risk of Loss - Noncarrier Cases
Not moved by common carrier;
Seller is merchant: risk of loss passes when buyer takes possession
Seller is not merchant: risk of loss passes to buyer upon delivery
Contract Interpretation - UCC - Delivery Terms - Risk of Loss - Carrier Cases - Shipment Contract
No requirement for delivery at particular destination; risk passes to buyer when goods delivered to carrier
This is the default and the presumption
Contract Interpretation - UCC - Delivery Terms - Risk of Loss - Carrier Cases - Destination Contract
Requirement for delivery of goods at particular destination; risk passes to buyer if goods tendered to buyer at location
Contract Interpretation - UCC - Delivery Terms - Risk of Loss - Carrier Cases - FOB
Free on board – Risk passes to buyer at named location
Seller bears risk/expense of getting goods to named location
Contract Interpretation - UCC - Delivery Terms - Risk of Loss - Carrier Cases - FAS
Free alongside – Boat; Risk passes to buyer once goods at dock
Contract Performance - Common Law
Requires substantial performance (essential purpose of contract)
Contract Performance - UCC
Perfect tender rule
Seller must deliver perfect goods at right place at right time or buyer may reject
Parties must act in good faith (honesty in fact and fair dealing)
Contract Performance - UCC - Seller’s Obligations of Tender and Delivery
Noncarrier: Seller must hold confirming goods for buyer to take possession
Carrier – Shipment
Seller duties: make reasonable contract w/ carrier on behalf of buyer, deliver goods to carrier, notify buyer of shipment, and provide buyer with docs to take possession of goods
Carrier – Destination: Seller must put and hold goods at buyers destination
Contract Performance - UCC - Buyer’s Obligation to Pay
Noncarrier: Due concurrent w/ delivery; Carrier: due when buyer receives good
Installment contracts: Seller may demand payment for each installment
Implied acceptance: Buyer keeps after reasonable period of inspection (1 mo+)
Must pay by cash or check (if seller refuse check > more time for cash)
Contract Performance - Conditions
Limit duties created by contract language unless thing happens
Condition - event/state must occur/fail to occur before party duty perform
Failure of a condition is not a breach, discharges liability of party
Contract Performance - Conditions - Express
Explicit contractual provisions, must be perfectly satisfied
Satisfaction condition – reasonable person standard
If dealing with personal taste > that person’s satisfaction
Contract Performance - Conditions - Constructive
Implied duty of each party to perform on the other performing
Obligation of one party to perform conditioned on other’s cooperation
Contract Performance - Conditions - Types
Condition precedent – Occur before duty arises in other party
Conditions concurrent – Occur together, parties’ duty arises same time
Condition subsequent – When occurs, cuts of duty of performance
Contract Performance - Conditions - Remedy for Conditions
If contract unenforceable bc condition and a party has fully/partially performed, can recover under unjust enrichment theory
Contract Performance - Conditions - Excusing Conditions for Failure to Cooperate
Party wrongfully prevents condition from occurring
Contract Performance - Conditions - Excusing Conditions for Waiver
Estoppel – Party indicates waiver & person detrimentally relies
Election – When condition doesn’t occur, party may terminate their liability or continue under contract (continuing > waver)
Conditions with no consideration that are ancillary or collateral; if installment contract, can insist on compliant future
Waiving party does not waive right to damages
Contract Performance - Conditions - Excusing Conditions for Anticipatory Repudiation
If promisor indicates they will not perform
Only bilateral contracts w/ unperformed duties for both parties
Stems from words/conduct unequivocally indicating will not do
Non-repudiating party can:
* Treat it as total repudiation and sue immediately
* Suspend performance and sue on performance date
* Treat as offer to rescind & contract as discharged
* Ignore & urge promisor to perform
Contract Performance - Conditions - Excusing Conditions for Anticipatory Repudiation - Failure to Give Adequate Assurances
If party has reasonable grounds to believe other party will not perform, they can suspend performance until they get adequate assurances
May be requested in writing
No assurances received > anticipatory repudiation
Contract Performance - Conditions - Excusing Conditions for Substantial Performance
Generally condition of complete performance may be excused by substantial performance if a constructive (implied) condition involved
Will generally not apply if breach is willful or for sales of goods
Party has right to damages
Contract Performance - Excusing Performance
Illegality, recission (mutual), modification, release (writing + consideration), substituted contract, accord (writing + consideration), novation (valid contract, agreement of all parties, end of OG duties, new contract), impossibility, impracticability, and frustration
Contract Performance - Excusing Performance - Impossibility
Must be objective & arise after contract
Partial > discharged only to that extent
Temporary > suspends contractual duties
Part Performance prior > quasi-contract, reasonable value
Excuse if subject matter is destroyed BUT NOT contractor’s duty to construct bc can rebuild
Increase in cost not excuse unless extreme
Nonoccurrence of event was basic assumption of parties and neither party expressly or impliedly assumed risk of event
Contract Performance - Excusing Performance - Impracticability
Party to perform encountered extreme and unreasonable difficulty/expense and nonoccurrence was basic assumption
Shortage of raw materials counts here
Partial > must allocate deliveries among customers
Nonoccurrence of event was basic assumption of parties and neither party expressly or impliedly assumed risk of event
Contract Performance - Excusing Performance - Frustration
Purpose is valueless by supervening event (no party fault)
Requires supervening act which parties did not reasonably foresee when entering, the purpose has been completely or almost completely destroyed by act, and purpose of contract was realized by both parties at time of making contract
Breach of Contract
If promisor is under duty to perform and does not and has no defenses > breach
Nonbreaching party > show that they are willing/able to perform but for breach
Breach of Contract - Material Breach - Common Law
Occurs when no performance/substantial performance or no benefit of bargain to non-breaching party
Minor breach > damages, not excuse of performance
* Minor if oblige gains substantial benefit of their bargain
* If w/ anticipatory repudiation > treat as material breach
* Timely performance is typically not material breach (unless key)
Material breach > treat as contract is ended AND right to remedies
Breach of Contract - Material Breach - UCC
Perfect tender rule – failure to conform > buyer reject, accept, or combo
Right to reject is cut off by acceptance (keeping, fail to reject, act inconsistent with seller ownership), but buyer can recover difference for nonconforming goods
Breach of Contract - Material Breach - UCC - Buyer Right to Revoke Acceptance
Goods have defect that impacts value & buyer accepted under belief defect would be cured OR difficulty of discovering defects
Breach of Contract - Material Breach - UCC - Seller’s Right to Cure Nonconforming Goods
Within performance time
MUST NOTIFY BUYER OF INTENT TO CURE
If buyer rejects goods seller reasonably believed would be acceptable (maybe w/ discount), seller (w/ notification to buyer) has reasonable time to make a conforming tender
Remedies - Breach of Contract
Expectation damages (in position as if contract performed)
Breach of Contract - Material Breach - UCC - Installment Contract
Reject installment if impaired value & no cure
Contract breached if nonconformity hurts entire contract value
Remedies - Quasi-Contracts
Promissory estoppel (in position as if contract never happened)
Remedies - Specific Performance
Equitable remedies are only available if the legal remedy (money) is inadequate
Breach of sale of good contract if goods unique or buyer unable to get cover
Land because all land is unique
Antique paintings/art or custom art because you cant get it elsewhere
Non-compete IF services unique + covenant is reasonable + not harm public
Injunctive relief to enjoin breaching party from working for competitor
Remedies - Specific Performance - Defenses
Subject to defenses of:
* Laches – P delayed action so long that delay prejudiced D
* Unclean hands – Party seeking performance is guilty of wrongdoing
* Sale to BFP – Subject matter sold to person (value + good faith)
Remedies - Buyer’s UCC Nonmonetary Remedies
Cancellation – If reject bc goods don’t confirm > can cancel
Replevy
Remedies - Seller’s UCC Nonmonetary Remedies
Unpaid seller right to reclaim – if buyer does not pay
Can get if buyer insolvent + seller demands reclamation within 10 days
Remedies - Monetary Remedies - Expectation Damages
Put party in position as if contract was performed
Remedies - Monetary Remedies - Restitution Damages
Measured by value of benefit already conferred
Essentially, just what party did before the breach
Remedies - Monetary Remedies - Reliance Damages
Return non-breaching party to status quo
Available if expectation damages are uncertain
Remedies - Monetary Remedies - Incidental Damages
Any costs incident to breach
ALWAYS RECOVERABLE
Includes costs dealing with breach, like moving items or finding buyer
Remedies - Monetary Remedies - Consequential Damages
Recoverable if foreseen at time of formation
Reflect losses over/above expectation; arise bc of nonbreaching party’s particular circumstances (like lost profits)
Remedies - Monetary Remedies - Liquidated Damages Clause
“In event of breach, damages = X”
Upheld: damages difficult to estimate at time of formation + reasonable
Invariable lump sums are typically always invalid
Remedies - Sales of Goods - Buyer
All about expectation damages
Cover damages – Difference between cover & original price
Market damages – Market price minus original price
* Occurs if buyer doesn’t cover (or not in good faith)
Loss in value – Difference in value as promised vs delivered
* Warranty damages fit here
Consequential damages – Only available if:
* Seller had reason to know of requirements & loss could not be prevented via cover
Remedies - Sales of Goods - Seller
Resale damages – OG contract price minus resale price
* Assumes & requires good faith resale
Market damages – Contract price minus market price
* If seller does not resell or does so in bad faith
Contract price – Available if seller cannot resell (like custom)
Lost-volume seller – has an unlimited supply
* Other damages are never adequate bc they lost a sale
* Results in damages = to lost profits
Remedies - Employment Breach
Employer breach – Full contract price
Employee breach – cost of replacing employee (offset money owed)
Remedies - Restitution
Preventing unjust enrichment
Measure is the value of the benefit conferred
If contract unenforceable or no contract > action in quasi-contract
* P must have conferred benefits on D with reasonable expectation of being compensated for its value, D knew/had reason to know of P’s expectation, and D would be unjustly enriched w/o paying
When a contract is breached
* Can cancel & sue for restitution
* If P performed, limited to damages under contract
Remedies - Recission
Contract considered voidable & rescinded
Grounds must have occurred before or at time contract formed
Includes: mutual mistake of material fact, unilateral mistake if other party knew, unilateral mistake if extreme hardship by mistaken party, misrepresentation of fact/law, duress, illegality, etc.
Remedies - Reformation
Writing changed to conform to intent of party
Mistake – If agreement between parties + agreement to put in writing + variance between original agreement and writing
Misrepresentation – P can choose between reformation and voidance
* Misrepresentation must relate to content or legal effect of record
* Parole evidence rule doesn’t apply here
UCC applies 4 year statute of limitations, parties may shorten to no less of year
Breach of warranty – Limitations period begins to run upon delivery
Rights/Duties of Third Parties to Contract - Entrust to Merchant
Entrusting goods to merchant who deals in goods of that kind gives them power to transfer all rights of entruster to buyer in ordinary course of business
Original owner has no rights against a BFP, but they can sue seller
But if induced by fraud, seller can recover from fraudulent buyer unless buyer sells to someone who was a good faith purchaser for value
Rights/Duties of Third Parties to Contract - Third Party Beneficiaries - Promisor and Promisee Liability
Promisor: Party who promises to perform for third party
* Liability: Third party can enforce against them, as can promisee
Promisee: Party who secured promise
* Liability: Third party can enforce against them
Rights/Duties of Third Parties to Contract - Third Party Beneficiaries - Intended Beneficiaries
Intended beneficiaries have contract rights
* Must be identified in contract, receives performance directly from promisor, or has relationship with promisee to indicate intent to benefit
Rights/Duties of Third Parties to Contract - Third Party Beneficiaries - Incidental Beneficiaries
Incidental beneficiaries cannot enforce contract
Rights/Duties of Third Parties to Contract - Third Party Beneficiaries - Creditor and Donee Beneficiaries
Creditor beneficiary – Person to whom debt is owed by promisee
Donee beneficiary - - Person who promisee intends to benefit gratuitously
Recission/modification – allowed until beneficiary’s rights have vested
* Vests: They manifest assent to a promise, bring suit to enforce promise, or materially change position in reliance on promise
* Can’t cancel/modify after vesting unless beneficiary consents or contract says so
Rights/Duties of Third Parties to Contract - Third Party Beneficiaries - Recission/Modification
Allowed until beneficiary’s rights have vested
Vests: They manifest assent to a promise, bring suit to enforce promise, or materially change position in reliance on promise
* Can’t cancel/modify after vesting unless B consents or contract says so
Rights/Duties of Third Parties to Contract - Assignment
Two parties contract, one transfers away their rights eventually to a third party
The new person is the assignee, old party is assignor
* Must manifest intent to immediately & completely transfer right
* No consideration is required
* Gift assignments are easily revokable
Assignee can enforce rights against party who owes duty (obligor)
Rights/Duties of Third Parties to Contract - Assignment - Contractual Rights
All contractual rights may be assigned UNLESS:
Assignment would substantially change obligor’s duty/risk, assignment of future rights in future contracts, or assignments prohibited by law
Contract language controls if it prohibits assignment
Rights/Duties of Third Parties to Contract - Assignment - Defenses
If assignor doesn’t act, obligor has same defenses against assignee as against assignor
Rights/Duties of Third Parties to Contract - Assignment - Multiple Assignees
Whichever assignee is last collects, BUT if they have consideration:
* First assignee for consideration prevails over subsequent assignees and prior gift assignees
* Last assignee will prevail if they do not know of prior and first to get payment from or judgement against obligor
Rights/Duties of Third Parties to Contract - Delegation
A transfer of duties
Contract duties may be delegated without obligee’s consent
BUT contractual provisions prohibiting assignment also ban delegations
Delegating person is always still liable, delegates who get consideration are too
Rights/Duties of Third Parties to Contract - Novation
Substitutes new party for original party
Requires assent, completely releases original
