Contracts Flashcards
Applicable Law
Determines whether the UCC or Common Law governs the transaction
UCC (Uniform Commercial Code)
The UCC applies when the sale of goods is involved.
UCC - Merchants
Are both parties merchants (someone who regularly does business with knowledge and experience in particular goods)? If selling/buying high volume, assume merchant. If unknown, assume non-merchant.
Example: If a car dealership sells cars regularly, they would be considered merchants.
Common Law (CL)
If K does not deal with sale of goods, e.g., real estate (house, land), services (construction).
Hybrid Cases
Determine the predominant purpose of the transaction.
FORMATION (Mutual Assent)
A valid contract requires offer, acceptance, and consideration.
Exchange Sought
Bilateral: Promise for promise. Unilateral: Promise for complete performance.
Once Promise Given
Bilateral: Both parties bound. Unilateral: Offeror bound only when performance completed. Offeree never bound to finish.
Offeror’s Revocation
Bilateral: OK before offeree’s acceptance. Unilateral: Once offeree begins performing, offeror may not revoke (option K is created). Mere preparation does not trigger irrevocability.
Offer
An offer must create a reasonable expectation in the offeree that the offeror is willing to enter a contract with the offered terms. There must be a promise, definite terms, and communication to the offeree.
Offer - Promise
There must be a present commitment rather than a mere invitation to begin negotiations.
Offer - Public Offers
Ads, catalogs, price quotes are invitations for offers. EXCEPT promises to specific offerees (“first come, first served”; “only one can win”).
Offer - Puffery
Jest or exaggeration does not create a reasonable expectation in offeree (Pepsi Points Case).
Offer - Reward Offers
Offers to enter into a unilateral K, EXCEPT limited to how many can accept.
Offer - Auctions
Auctioneer is inviting offers; bids are offers, EXCEPT where “without reserve”.
Offer - Definite Terms
Must sufficiently identify offeree & definite subject matter (LSK: land and price / service K: nature of work / UCC: quantity). Ct may supply reasonable missing terms, except price in LSK.
Offer - Communication
Offeree must have knowledge of the communication.
Termination of Offer
By offeror before acceptance, may happen after effective acceptance (e.g., by a letter).
Termination - Revocation
Retraction of an offer by the offeror, effective when received by offeree, or by publication through comparable means (e.g., can’t revoke offer in business magazine by publishing in home magazine).
Revocation - Irrevocable
Irrevocable if 1) UCC firm offer: Offer by merchant in signed writing to keep offer open during time stated (or, if not stated, reasonable time up to 3 months). 2) Payment required. 3) Detrimental reliance. 4) Part performance of unilateral K.
Termination - Rejection
Outright rejection or another method to reject + create new offer.
Rejection - Counteroffer
Not mere inquiry.
Rejection - Nonconforming Acceptance
Mirror image rule: Acceptance must mirror the terms of the offer.
Termination - Lapse of Time
Offeree must accept within specified/reasonable time starting from when offer is received by offeree or when it would have been received (if delayed + offeree knows or should have known); otherwise, offeree allows offer to terminate.
Termination - Death or Incapacity
Destruction of subject matter, unconscionability, invalid party (minor, insane, etc.).
Acceptance
Offeree must objectively manifest assents to terms and communicate it in any reasonable manner. Expressly or by conduct. Offeree must have knowledge of offer.
Acceptance - Unilateral K
Only complete performance constitutes acceptance of offer. Completed act forms the K.
Acceptance - Timing
Mailbox rule: Acceptance is effective when dispatched. EXCEPTION: When exercising option K, effective when received. Other types of communication (such as offers) are effective when received.
Acceptance - Response Proposes Changes
If the offeree’s response to offer proposes adding/deleting/changing terms:
Response - CL
Each and every term of offer must be accepted unequivocally (mirror image rule). Any additional/different terms in the acceptance makes the response a rejection and counteroffer.
Response - UCC § 2-207 (Battle of the Forms)
A contract can be formed between merchants even though terms of acceptance do not match terms of offer. Additional/different terms are effective as an acceptance, unless acceptance is expressly made conditional on acceptance of proposed terms.
Response - Not a Merchant
§ 2-207 is not applicable. Additional/different terms are mere proposals and not part of K unless offeror agrees to the modified terms.
Response - Both Merchants + Additional Terms
Additional terms become part of K, UNLESS: 1) Acceptance is made conditional on offeror’s assent to additional or different terms. 2) New terms materially alter original terms, e.g., arbitration clause, disclaimer, materially shorten deadline, change usage of trade or past method of dealing. 3) Offeror objects to the change within reasonable time.
Response - Both Merchants + Different Terms
Knockout rule (majority): Conflicting
Response - Both Merchants + Additional Terms
Additional terms become part of K, UNLESS: 1) Acceptance is made conditional on offeror’s assent to additional or different terms. 2) New terms materially alter original terms, e.g., arbitration clause, disclaimer, materially shorten deadline, change usage of trade or past method of dealing. 3) Offeror objects to the change within reasonable time.
Example sentence: If the offeror objects to the additional terms within a reasonable time, those terms may not become part of the contract.
Response - Both Merchants + Different Terms
Knockout rule (majority): Conflicting terms are omitted from K; gaps left are filled by UCC default terms (see § V-2-v). Minority rule: Alternatively, analyze as if additional terms (see (b) above). No acceptance but parties perform anyway? Use knockout rule.
Example sentence: The knockout rule applies when there are conflicting terms in the contract.
Consideration - Value of Promises
Value of promises or requests is irrelevant for validity: Zero-value token is not sufficient consideration, but “a mere peppercorn will suffice”.
Example sentence: Even a nominal amount of consideration, like a peppercorn, can be sufficient for a contract to be valid.
Consideration - Peace of Mind
Peace of mind or personal satisfaction is sufficient to qualify as a benefit.
Example sentence: Personal satisfaction can be considered a benefit in the context of contract consideration.
Consideration - Unconscionability Defense
Consider unconscionability defense (see below) for excessively one-sided bargain.
Example sentence: The unconscionability defense can be used when a contract is deemed to be extremely one-sided.
Consideration - Surrendering a Claim
If the claim is invalid, surrendering can still constitute consideration if 1) the claim is in fact doubtful, or 2) The surrendering party (regardless of other party) believes the claim is well founded.
Example sentence: Surrendering a doubtful claim can still be considered valid consideration in a contract.
Consideration - Where it Does Not Exist
Illusory promise: Only one party is bound to perform, leaves performance to discretion of other party—”all the widgets I want” (not “I require”), “all you want to sell me” (not “you produce”).
Example sentence: An illusory promise occurs when only one party is obligated to perform.
Consideration - Gratuitous Promise
A promise to make a gift and no return consideration.
Example sentence: A gratuitous promise involves giving a gift without expecting anything in return.
Consideration - Executed Gift
Legally binding intent to give a gift + actual/symbolic delivery.
Example sentence: An executed gift involves the intent to give a gift and the actual delivery of the gift.
Consideration - Past/Moral Consideration
Promise in exchange for something already given or performed. EXCEPTIONS: New promise to pay anyway.
Example sentence: Past or moral consideration involves exchanging a promise for something that has already been given or done.
Consideration - Statute of Limitations
Written promise to pay a debt barred by limitations.
Example sentence: A promise to pay a debt that is past the statute of limitations may not be enforceable.
Consideration - Bankruptcy
Written promise to pay a debt discharged by bankruptcy.
Example sentence: A promise to pay a debt that has been discharged through bankruptcy may not be valid consideration.
Consideration - Substitutes/Alternatives
For consideration—use to enforce a promise in the absence of consideration.
Example sentence: Substitutes or alternatives can be used as consideration to enforce a promise when there is no other consideration.
Consideration - Promissory Estoppel
1) Specific promise of future gratuitous action. 2) Promisee’s action was reasonably foreseeable to promisor, 3) Reliance induced by the promise and not other factors, 4) Injustice without enforcement (willfulness of breach, relative positions, detriment, alternatives).
Example sentence: Promissory estoppel involves enforcing a promise when one party has relied on the promise to their detriment.
Consideration - Quasi-K
AKA restitution, quantum meruit, implied-in-law K: Where A has conferred a benefit upon B under circumstances where no enforceable K results, A may be entitled to recover the value of the benefit conferred.
Example sentence: Quasi-contract, also known as restitution, allows for recovery when a benefit has been conferred without a formal contract.
Consideration - Implied Best Efforts
Where a party is to be the exclusive distributor, courts will imply a promise to use best efforts to sell the product. This implied promise is valid consideration (CL and UCC).
Example sentence: Implied best efforts can be considered valid consideration when one party is expected to use their best efforts in selling a product.
DEFENSES TO FORMATION
Absence of mutual assent
Example sentence: Lack of mutual assent can be a defense to the formation of a contract.
Defenses - Mutual Mistake
As to existing facts: K is voidable by adversely affected party if 1) mistake concerns a basic assumption of K, 2) mistake has a material effect on agreement, and 3) affected party did not assume the risk of the mistake (assumption commonly occurs when one party is in a better position to know the risks).
Example sentence: Mutual mistake can make a contract voidable if it goes to a basic assumption of the contract and has a material effect on the agreement.
Defenses - Unilateral Mistake
K voidable only if non-mistaken party knew or had reason to know of mistake by other party.
Example sentence: A unilateral mistake may only make a contract voidable if the other party was aware of the mistake.
Defenses - Absence of Consideration
Result: No K exists.
Example sentence: Lack of consideration can result in the absence of a valid contract.
Defenses - Incapacity
Infancy (under 18) or mental incompetence at the time of K. Such incapacitated party may enter into a K and enforce it, and the K is voidable only by that party.
Example sentence: Incapacity due to being under 18 or mentally incompetent can make a contract voidable by the incapacitated party.
Defenses - Ratification
Once a minor turns 18, may expressly/impliedly ratify and be bound to K. EXCEPTION: Can recover reasonable value for necessaries (food, clothing, shelter).
Example sentence: Ratification can occur when a minor reaches the age of 18 and chooses to be bound by a contract they entered into as a minor.
Defenses - Misrepresentation
K becomes voidable by innocent party.
Example sentence: Misrepresentation can make a contract voidable by the party that was misled.
Misrepresentation - Fraudulent
Fraud in the inducement: Inducing another party to enter into K by asserting or conduct such that other party infers untrue information. K voidable if justifiably relied on misrepresentation.
Example sentence: Fraudulent misrepresentation occurs when one party induces the other to enter into a contract by providing false information.
Misrepresentation - Nonfraudulent
K voidable if innocent party justifiably relied on material misrepresentation.
Example sentence: Nonfraudulent misrepresentation can still make a contract voidable if the innocent party relied on the false information.
Misrepresentation - Materiality
Objectively likely to induce a reasonable person to agree with asserted information or subjectively the maker of assertion had reason to know it was likely to cause someone to agree.
Example sentence: Materiality in misrepresentation means that the false information would likely influence a reasonable person’s decision.
Defenses - Fraudulent Nondisclosure
Nondisclosure of material facts + duty to disclose (e.g., fiduciary relationship, assertion later made untrue, obligation of good faith) + reasonable reliance on nondisclosure. K becomes voidable.
Example sentence: Fraudulent nondisclosure occurs when one party fails to disclose important information that would impact the contract.
Defenses - Duress
1)
Example sentence: Duress can be a defense to the formation of a contract.
What is the definition of misrepresentation?
Materiality,Objectively likely to induce a reasonable person to agree with asserted information or subjectively the maker of assertion had reason to know it was likely to cause someone to agree.
Example sentence: The innocent party justifiably relied on material misrepresentation.
What are the elements of the defense Fraudulent Nondisclosure?
Nondisclosure of material facts + duty to disclose (e.g., fiduciary relationship, assertion later made untrue, obligation of good faith) + reasonable reliance on nondisclosure. K becomes voidable.
No additional information.
