Contracts Flashcards
Contract Formation
- Offer: 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.
The terms of an offer need to be reasonably certain (e.g., as to parties, subject matter, price, etc.).
Real Estate: An offer involving realty must include: (a) The price and (b) A description of the land with some particularity.
Sale Of Goods: An offer for the sale of good requires the quantity being offered to be certain.
Employment Contracts: If the duration of the contract is not specified, the offer, if accepted, is construed as creating a contract terminable at the will of either party.
Counteroffer: At common law, a statement is a counteroffer, rather than an acceptance, when the terms of the initial offer are changed (mirror-image rule)
Promise to hold offer open: Generally, an offer may be revoked before acceptance. A promise to hold an offer open requires consideration in order to be binding (unless the UCC firm offer exception applies).
Merchants Firm Offer
1. If a merchant offers to buy or sell goods in a signed writing; and
3. The writing gives assurances it will be held open, the offer is not revocable
- Maximum 3 months
- Acceptance: An acceptance is a manifestation of assent to the terms of an offer made in a manner invited by the offer. It is effective upon dispatch (the mailbox rule).
- Acceptance Of A Unilateral Contract: A unilateral contract is not accepted until performance is completed.
- Common Law Mirror Image Rule: Acceptance must mirror offer
Rejection: A rejection is a manifestation of intent to not accept the offer. It terminates the offeree’s power to accept an offer. It is effective when received by the offeror. Note: If a rejection is sent and then an acceptance is sent, whichever the recipient receives first is effective.
- Consideration: There must be a bargained for exchange of something of legal value
A promise to make a gift does not constitute consideration
Pre existing-duty rule: Under common law, promising to perform a legal duty already owed to a promisor is not valid consideration. Exception:
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.
Promissory estoppel is a substitute for consideration if there is (1) a promise, (2) reliance that is foreseeable and justifiable, and (3) enforcement is necessary to avoid injustice, the promise will be enforced.
UCC: Under the UCC, only good faith is needed to modify a contract
Performance Obligations:
Under common law, a party must “substantially perform” its contractual obligations in order to demand performance (usually payment) from the other party.
Courts will look at several factors to determine whether performance was substantial.
Material Breach: If the obligee does not receive the substantial benefit of their bargain, the breach is considered material
If the breach is material the non breaching party may:
1. Treat the contract as at an end, meaning their duties of performance are discharged; and
2. Will have immediate right to all remedies for breach of the entire contract.
Minor Breach: A breach of contract is minor if the obligee gains the substantial benefit of their bargain despite the obligor’s defective performance.
A minor breach does not relieve the aggrieved party of their duty of performance; it merely gives them a right to damages for the minor breach
In determining whether a breach is material or minor courts look at:
1. The amount of the benefit received by the non breaching party
2. The adequacy of compensation for damages to the injured party
3. The extent of part performance by the breaching party
4. Hardship to the breaching party
5. Negligent or willful behavior of the breaching party; and
6. The likelihood that the breaching party will perform the remainder of the contract.
Exception: Divisible contracts: A court may find a contract divisible when:
1. The performance of each party is divided into two or more parts under the contract;
2. The number of parts due from each party is the same; and
3. The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party.
A party that performs one or more parts of the contract may collect payment for those parts even if he does not substantially complete performance of his duties.
Anticipatory Repudiation
Anticipatory repudiation: This occurs when there is an unequivocal manifestation by one party to the other that the party cannot or will not perform its obligations under the contract (a mere expression of doubt is not enough) and this statement is made before the repudiating party’s performance is due.
The other party may wait for a reasonable time for performance or resort to any remedy for breach of contract.
Prospective inability to perform: This occurs when a party has reasonable grounds for insecurity that the other party is unable or unwilling to perform. This is merely doubt, it does not rise to the level of an anticipatory repudiation.
Under the UCC, the party may then, in writing, demand adequate assurance of performance, and until she receives such assurance, may suspend her performance. If such assurance is not given within a reasonable time, not exceeding 30 days, the other party may treat it as a repudiation.
Retracting a repudiation: The party who has repudiated can retract his repudiation unless the other party
1. Cancelled the contract,
2. Materially changed his position in reliance on the repudiation, or
3. Indicated that he considers the repudiation to be final.
Statue of Frauds
A contract within the Statute of Frauds satisfies that statute and is enforceable if it is
evidenced by a writing signed by ‘the party to be charged, which
1. Reasonably identifies the subject matter of the contract,
2. Is sufficient to indicate that a contract has been made, and
3. States with reasonable certainty the essential terms of the contract.
MYLEGS
When a Contract Removed From Statue of Frauds
Modifications must be in writing only if the modified contract falls within the statue of frauds.
Common Law: Even if a written contract expressly provides that it may only be modified 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 non-merchant, however, this provision requires the non-merchants separate signature.
Waiver: If the parties attempt to orally modify a contract that requires a written modification (either because of a contract clause or the Statue of Frauds), it is technically ineffective as a modification but can operate as a waiver.
Exception For Service Contracts: Full performance contract satisfies Statue of Frauds
Thus, an oral contract that cannot be completed in one year but has been fully performed by one party is enforceable.
Part-Performance For Sale Of Goods: Part performance takes a sale of goods contract out of the Statue of Frauds when:
1. The goods have been specifically manufactured; or
2. The goods have either been paid for or accepted
There are 3 situations in which contracts are enforceable without the writing described above:
1. Specifically Manufactured Goods: If goods are to be manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of their business, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a substantial beginning in their manufacture or commitments for their purchase before notice or repudiation is received.
- Admissions In Pleadings or Court
- If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract is enforceable without a writing - Merchants Confirmatory Memo Rule
In contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statue of Frauds to bind the sender, it will also bind the recipient if: - They have reason to know of the confirmations contents; and
- They do not object to it in writing within 10 days of receipt.
Parol Evidence Rule
Integration Rule: When the parties to a contract express their agreements in writing with the intent that it embody the final expression of their bargain, the writing is an “integration”.
Any other expressions- written or oral- made prior to the writing, as well as any oral expressions contemporaneous with the writing are inadmissible to vary the terms of the writing.
Parol Evidence Rule Test: Excludes evidence of:
1. Prior or contemporaneous agreements that contradict a final writing
Exceptions To Parol Evidence Rule:
1. Partial Integration: If the integration is partial, the writing may not be contradicted but may be supplemented by proving consistent additional terms.
Merger Clause: A merger clause recites that the agreement is the complete agreement between the parties. Thus partial integration doesn’t work if a merger clause is present.
- Defense Against Formation
A party to a written contract can attack the agreements validity.
Formation Defects: Such as fraud, duress, mistake, and illegality, may be shown by extrinsic evidence
Conditions Precedent To Effectiveness: If a party asserts that there was an oral agreement that the written contract would not become effective until a condition occurred, all evidence of the understanding may be offered and received - Explain Vague Term
- Correct Clerical Erros
Article 2 Parol Evidence Rule: Article 2 generally follows the rules above providing that a party cannot contradict a written contract but may add consistent additional terms unless:
1. There is a merger clause; or
2. The courts finds from all of the circumstances that the writing was intended as a complete and exclusive statement of the terms of the agreement.
Damages
Compensatory Damages: The goal of damages for breach of contract is to put the non-breaching party in the position they would have been in had the promise been performed.
Expectation Damages: The normal measure of damages for breach of contract is expectation damages, which aim to give the non-breaching party the benefit of his bargain.” Expectation damages must be foreseeable and proven with reasonable certainty.
Consequential Damages: Special damages that reflect losses over and above standard expectation damages. Usually consist of lost profits.
These damages may only be recovered if, at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of breach.
Punitive damages: Punitive damages are generally not recoverable in a breach of contract action “unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.”
Liquidated damages will be enforceable if the following two requirements are met:
1. Damages for contractual breach are difficult to estimate or ascertain at the time the contract is formed; and
2. The amount agreed on is a reasonable forecast of compensatory damages in the case of breach.
Article 2 Rule Statement
Article 2 of the Uniform Commercial Code applies to transactions in goods.
Goods are ‘things moveable’ at the time of identification to the contract.
A contract under Article 2 may be made in ‘any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.’
Merchants Firm Offer
Merchants Firm Offer: Under Article 2:
1. If a merchant offers to buy or sell goods in a signed writing; and
2. The writing gives assurances it will be held open, the offer is not revocable.
Article 2 Battle of the Forms
Merchants: If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless:
1. They materially alter the original terms of the offer
Such as by challenging a parties risk or remedies;
Material change: Causes hardship or surprise
Industry Custom is not material change
- The offer expressly limits acceptance to the original terms of the offer; or
- The offeror has already objected to the particular terms, or object within a reasonable time after notice of them is received.
Non Merchants: If any party to the contract is a non-merchants the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract.
Article 2 Consideration for Modification
Article 2: Under the UCC, consideration isn’t necessary to modify, all the parties need are good faith promises of new and different terms.
Article 2 Warranties
Implied Warranty Of Merchantability: Implied in every contract for sale by a merchant who deals in goods of the kind sold, there is a warranty that the goods are merchantable.
Merchantable: To be merchantable, good must at least be “fit for the ordinary purpose for which such goods are used”
Implied Warranty of Fitness for a Particular Purpose: A warranty will be implied in a contract for the sale of goods whenever:
1. Any seller that 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 judgement to select suitable goods; and
2. The buyer in fact relies on the seller’s skill or judgement.
Rejecting Goods and Revocation of Acceptance of Goods(UCC)
Perfect Tender Rule: Rejection of goods(UCC): A buyer can generally reject goods for any reason under the perfect-tender rule.
If goods or their delivery fail to conform to the contract in anyway the buyer may generally:
1 Reject all,
2. Accept all, or
3. Accept any commercial units and reject the rest.
A buyer right to reject under the perfect tender doctrine generally is cut off by acceptance.
- Seller has right to cure within original contract time, and if they reasonably believed goods were conforming a reasonable time thereafter
Revocation of acceptance of goods: If a buyer accepts the goods, he can no longer reject them. But, a buyer can revoke his acceptance of the goods when:
1. The nonconformity substantially impairs the value to him;
2. He accepted the goods because he had a reasonable belief the nonconformity would be cured (and it wasn’t), or he didn’t discover the nonconformity because it was difficult to discover, or because of seller’s assurances;
3. He revokes within a reasonable time after he discovers or should’ve discovered the nonconformity; and
4. He revokes before any substantial change in condition of the goods which is not caused by their own defect.
A buyer who revokes his acceptance may recover the purchase price paid.
Delivery Terms and Risk of Loss
Defective Goods: If the buyer has a right to reject the goods, the 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.
Non-carrier Case: A non-carrier case is a sale in which it appears that the parties did not intend that the goods would be moved by a common carrier. In this case, if the seller is a merchant, risk of loss passes to the buyer only when they take physical possession of the goods. If the seller is not a merchant, risk of loss passes to the buyer upon tender of delivery.
Shipment Contracts: If the contract authorizes the seller to ship the goods by carrier but does not require them to deliver the goods to a particular destination, its a shipment contract and risk of loss passes to the buyer when the goods delivered to the carrier. (Article 2 presumes a contract is a shipment contract)
Seller Duties Under Shipment Contracts: 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.
Destination Contracts: If the contract requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.
FOB: Free on board. FOB is always followed by a location and the risk of loss passes to the buyer at the named location
FAS: Free alongside. Generally used when goods are to be shipped by boat. Risk of loss passes to buyer when goods are delivered to the dock.
Discharge
Discharge by Novation:
The elements for a valid novation are:
1. A previous valid contract
2. An agreement among all parties, including the new party 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.
Delegation: One party finds replacement party to perform. Original party’s obligations are not excused
Discharge By Impracticability(Article 2): The test for a finding of impracticability is that the party to perform has encountered:
1. Extreme and unreasonable difficulty or expense; and
2. It’s nonoccurence was a basic assumption of the parties.
Discharge By Accord and Satisfaction: Agreement to accept different performance to satisfy existing duty.
An accord must be supported by consideration.
