Contracts Flashcards
when does article 2 apply?
- Article 2 of the UCC applies to transactions in goods
- goods are things moveable at the time of contracting
What are the requirements for a contract formation?
Contract = Mutual Assent (Offer+Acceptance) + Consideration – Defenses
Predominant Purpose Rule
- When a transaction involves the sale of goods + services the rule is to apply all common law or all UCC depending on the more important part of the transaction.
- If the contract divides payment between the sales and service portion, then Article 2 of the UCC applies to sales portion and Common Law applies to the service portion
Requirements for an offer
- Communication of willingness to enter into a bargain.
- Must be reasonably certain as to parties, subject matter, and price.
definite and certain term requiremtens
Land Sale Offers Must Include – (i) Price and (ii) Description of the Land.
Sale of Goods Must Include – Quantity Terms (UCC Gap filler fills in the blank for price)
Employment Contracts – If the duration of the employment is not specified then the acceptance of the contract creates a contract that is terminable at will.
termination of an offer
Offers are generally revocable prior to acceptance.
Offers may be revoked through:
* lapse of reasonable time
* explicit rejection
* counteroffer
* conditional acceptance
* additional terms
* revocation by seller
* revocation by operation law
revocation is effective upon receipt.
What kinds of offers are irrevocable?
Options Contracts – When an offeree gives consideration to the offeror to not revoke offer for period of time. A mere promise not to revoke an offer, without consideration is still revocable.
Merchants Firm Offer – Merchant promises, in signed writing, to keep an offer open for time stated or reasonable time (enforceable for up to 3 months.)
Unilateral Offer – When an offeree begins performance under a unilateral contract the offeror’s offer becomes irrevocable. Mere preparation to perform is not the same as starting performance.
Foreseeable Detrimental Reliance - makes an offer irrevocable.
is an advertisement/catalog an offer?
- Not an offer but an invitation to deal.
- However, advertisements can become an offer if it: (i) includes a promise (ii) the terms are definite/specific and (iii) the Offeree is identified
what is Acceptance
Acceptance is a manifestation of assent to the terms of an offer.
How may acceptance be made?
Types of acceptance
* Express acceptance
* Beginning performance (such as sending goods)
* Completing performance (unilateral contract)
Additional requirements
* Under the mailbox rule, an acceptance is effective when sent.
* If an offer is irrevocable, then acceptance must be received.
* Rejections Sent Before Acceptance defeats the mailbox rule. Whichever is received first controls.
acceptance/rejection of goods received under article 2
Under Article 2, a buyer accepts if they:
* Indicate goods conform to contract.
* Indicate they’ll keep nonconforming goods.
* Fail to reject within reasonable time.
* Fail to notify seller of rejection.
* Act inconsistent with seller’s ownership!
The buyer may revoke their acceptance if the goods have a defect that substantially impairs their value to the buyer and:
* They accepted the goods on the reasonable belief that the defect would be cured and it has not been, OR
* They accepted the goods because of the difficulty of discovering the defects or because of the seller’s assurance that the goods conformed to the contract
The common law mirror image rule
- Under common law an acceptance must mirror offer terms. If an offeree throws in additional terms, then it is considered a rejection and counteroffer.
What is “accomodation”?
- The shipment of nonconforming goods = Breach
- The shipment of nonconforming goods as an accommodation with notice of such = Counteroffer (No Breach)
UCC Article 2 – Battle of the forms
An offeree’s additional terms will be considered part of the contract if:
1. Both parties are merchants,
2. The additional terms are not material, and
3. The offeree doesn’t object to the non-material additional terms.
- If the additional terms are material there is a contract without the materially different terms.
- If term effects price, liability, or remedy, it is material. If change causes hardship or surprise to the adverse party it is material. If a change is customary in the industry, then it is not a material change.
- If the offeree makes acceptance conditional upon assent to an additional term, there is no acceptance, but instead a counteroffer.
What is consideration
Two elements are necessary to constitute consideration: (1) a bargained-for exchange between the parties; and (2) legal value (benefit or detriment)
- Past Consideration – is not consideration.
- Some states will recognize past consideration if a promise is made after reciept of a significant benefit (such as after an emergency)
- Possible future value - is consideration
- Adequacy of Consideration – Courts do not inquire about the adequacy of consideration.
common law prexisting duty rule (consideration for modification)
- New Consideration is required for Modifications under common law based on the preexisting duty.
- Consideration is usually found to exist where the obligations of both parties have been changed.
Modification for article 2 sale of goods
No consideration is needed to modify sale of goods contracts. As long as there is good faith reason to modify a deal it is enforceable.
Material Benefit Rule - Consideration Substitute
Under a modern trend, some courts will enforce a promise if:
(i) it is based on a material benefit that was previously conferred by the promisee on the promisor, and
(ii) the promisee did not intend to confer the benefit as a gift.
promissory estoppel - Consideration Substitute
- substitute for consideration
- requires 1) a promise 2) on which a party forseeability and reasonably relied 3) to their detriment 4) so that enforcement of the promise is necesssary to avoid injustice.
What kinds of Contracts are subject to the Statute of Frauds?
MYLEGS:
* Contracts in consideration of Marriage
* Contracts requiring performance more than one Year in the future.
* **Land **Sales Contracts
* Executor or Administrator Promises Personally to Pay Estate Debts
* Goods worth $500 or more
* Sureties (Guarantee) Contracts - unless guarantor benefits from underlying contract
What does the statute of frauds require?
The Statute requires a writing that
(1) reasonably identifies the subject matter of the contract,
(2) indicates that a contract has been made between the parties, and
(3) states with reasonable certainty the essential terms.
* Writings evidencing land sale contracts must contain a description of the land and the price
* Writings for employment contracts must state the length of employment
* Writings evidencing sales of goods contracts (UCC) must indicate that a contract has been made and specify the quantity term
* Only the party to be charged (the person to be sued) must sign.
What are the exceptions to the statute of frauds?
(1) Real estate contracts in which conveyance by the seller has already occurred
(2) Part Performance of real estate contracts – applicable if 2/3 are satisfied:
* Payment
* Possession
* Improvement
(3) Full performance of an oral contract for goods or services
(4) Sales of custom goods
(5) Judicial Admission – Agreements admitted in court (but only to the extent admitted).
(6) Merchant’s confirmatory memo
(7) Conditions precedent for a contract to come into force, even if the contract is required to be in writing under the statute of frauds.
Parol evidence (four corners) rule
- Excludes evidence of prior or contemporaneous agreements that contradict a final integrated writing.
- Intregration is determined by the totality of the circumstances.
parol evidence rule doesn’t apply to
* a determination of integration
* defenses against formation
* interprestation of vague terms
* conditions precedent to efficetiveness
* showing of consideration
* additional, consistent terms under article 2
* subsequent modifications.
Contract construction priority
- Express terms
- Course of Performance – Parties conduct under prior installments of current contract.
- Course of Dealings – Parties conduct in prior contracts.
- Custom and Trade Usage – Industry norms that parties are aware of.
Article 2 gap fillers
A contract for the sale of goods doesnt fail because on or more terms are missing.
Gap filler will be used for the following:
* Price – reasonable price at the time for delivery.
* Place of delivery – the seller’s place of business/home
* Time of delivery – within a reasonable time.
* Time of payment – the time and place at which the buyer is to receive the goods.
* Assortment - at the buyers option.
Express Warranty (defense)
- a promise made concerning the quality and fitness of a product.
- a sample is an express warranty.
- cannot be disclaimed.
Implied Warranty of Merchantability (defense)
- Goods are fit for ordinary, foreseeable purposes. Applies to merchants who regularly sell the goods in question
- To be effective, a disclaimer must be part of the offer and acceptance process
Implied Warranty of Fitness for Particular purpose (defense)
- Buyer comes in with special purpose, seller knows of special purpose, seller picks out goods fit for buyer’s special purposes.
- A seller doesn’t have to be a merchant
Buyers damages for Breach of Warranty
Generally, the measure of damages for breach of any warranty is the difference between the value of the goods accepted and the value of the goods as warranted.
General risk of loss for non merchant sellers
Nonmerchant sellers bear the risk of loss until the goods are TENDERED.
General risk of loss for merchant sellers in non-carrier cases
- If the seller is a merchant, then they bear the risk of loss until the buyer receives the goods.
risk of loss in shipment contracts
A seller delivers goods to common carrier, arranges for delivery, and notifies buyer. The risk of loss passes to the buyer on delivery to the CARRIER.
risk of loss in destination contracts
Seller must give the goods to buyer’s location. Risk of Loss passes to buyer UPON RECEIPT FOB (FREE ON BOARD).
Goods Destroyed Before Risk of Loss Passes in carrier cases.
If goods that were identified (a particular item is specified) when the contract was made are destroyed (1) without fault by either party and (2) before the risk of loss passes to the buyer, the contract is avoided by impossibility (that is, the seller’s performance is excused, and the buyer need not pay).
If the goods were not identified (not particular) the seller in this situation would have to prove impracticability. If the seller cannot prove impracticability, they will be liable for cover price minus contract price.
conditions precedent and subsequent
Condition Precedent – an event that must occur before a performance obligation is triggered.
Condition Subsequent – Event that must occur after performance to terminate performance obligation.
the word “when” is usually held not to create a condition.
Condition of Satisfaction Clause
Satisfaction is measured by reasonable person in good faith unless: Contract deals with art or personal taste.
Anticipatory Repudiation
- When a promisor indicates that they won’t perform when the time comes.
- Must be unequivocal. Excuses another party from their performance obligations.
- Repudiations may be retracted so long as they have not been relied on yet.
Gives the injured party immediate right to damages. Four options.
a) Treat the anticipatory repudiation as a total repudiation and sue immediately
b) Suspend their own performance and wait to sue until the performance date
c) Treat the repudiation as an offer to rescind and treat the contract as discharged, or
d) Ignore the repudiation and urge the promisor to perform
Failure to Give Adequate Assurance to Prospective Failure
- Occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. A party may ask for assurance other will perform.
- Only if Assurance not received = anticipatory repudiation
difference between performance obligations under common law and article 2
Common Law Substantial Performance
* requires substantial performance to elicit performance from other party
* performing party has completed enough of the contract’s essential terms to fulfill its purpose.
* If there is substantial performance with a minor breach, the innocent party can deducting damages suffered due to the first party’s incomplete performance from contract price or sue for damages.
* Willfully incomplete performance is usually not considered substantial.
UCC perfect tender
* if goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.
Accord and Satisfaction
- An agreement to accept different performance to satisfy existing duty.
- Unlike, modification, here performance is excused/discharged upon satisfaction.
- Original obligation is suspended until the new accord is satisfied.
- An agreement in which one party agrees to perform another obligation in lieu of an old performance.
- Look for Bonafede dispute to claim. E.g. I make a partial payment because of a defect or dispute. Old contract is suspended until the accord is completed
Novation
- An agreement between all parties to substitute a new party for an existing party.
- Consent of all parties is needed.
- Where it looks like a novation but the new party has a contract to perform the duties of one of the original parties, you have a third party beneficiary situation.
Delegation
- One party goes out on their own and finds a replacement party to perform, however the original party’s obligation is not excused. Transfer of duties.
- Consent of the other contracting party not needed
Impossibility
- Contractual duties will be discharged if it has become impossible to perform them.
- Objective test – the duties could not be performed by anyone.
- The impossibility must arise after the contract has been entered into
- Each party is excused from duties arising under the contract that are yet to be fulfilled.
Impracticability
- When 1) unforeseen circumstances arise, rendering performance 2) extremely and unreasonably difficult or expensive.
- Increase in cost of production is generally not impracticability
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frustration of purpose
performance is excused when the mututally understood central purpose of a contract is undermined
Recission
The original contract is considered voidable and rescinded.
The grounds for rescission must have occurred either before or at the time the contract was formed.
The grounds are:
(i) Mutual mistake of a material fact
(ii) Unilateral mistake if the other benefitting party knew or should have known of the mistake
(iii) Unilateral mistake if hardship by the mistaken party is so extreme it outweighs the other party’s expectations under the contract
(iv) Misrepresentation of fact or law by either party as to a material factor in the negotiations that was relied upon, and
(v) Other grounds, such as duress, undue influence, illegality, lack of capacity, and failure of consideration
Economic Duress
(1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
(2) there are no adequate means available to prevent the threatened loss.
specific performance (remedy)
Used when money damages are inadequate, and it is feasible to enforce a decree. All land sale contracts are entitled to specific performance.
* For sale of goods, it is only appropriate if the sale is unique, or
* The buyer is unable to cover/replace.
reformation (remedy)
- The writing setting forth the agreement between the parties is changed so that it conforms to the original intent of the parties.
- Usually when mistake or misrepresentation.
common law expectation damages
- Simulates the contract benefits. Allows damaged party to buy a substitute performance.
- = Cost of the benefit lost by nonperformance.
- = cover price - original contract price
common law reliance damages
- Reliance damages award the plaintiff the cost of their performance; that is, they are designed to put the plaintiff in the position that would have been in had the contract never been formed.
- Used if expectation damages are speculative
Restitution (unjust enrichment)
- Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent.
- Can be used even when no contract.
- = the value of the benefit conferred if 1) the party conferring the benefit had the reasonable expectation of being compensated, 2) the defendant knew or had reason to know of the plaintiff’s expectation, and 3) the defendant would be unjustly enriched.
Incidental damages
- Cost incurred by dealing with the breach.
- Inspection, receipt, transportation, care, etc,
Consequential Damages
- reflect losses over and above standard expectation damages.
- They arise because of the nonbreaching party’s particular circumstances, and most often they consist of lost profits.
- only for buyers
article 2 damages - buyer (mitigation, market, warranty)
Mitigation Damages
* Cover Price – contract price (standard remedy)
Market Damages
* Market Price – contract price (applies when party doesn’t mitigate)
Warranty Damages (Loss In Value)
* When buyers keep nonconforming goods, they are still entitled to loss in value.
* Loss In Value = Value Promised – Value as delivered
article 2 damages seller (resale, market, loss volume, defective good)
Resale Damages
* Contract Price – Resale price
Market Damages
* Contract Price – Market price (applies when party doesn’t mitigate)
Loss-Volume Seller (Lost Profits)
* Characterized by unlimited supply (car dealer)
* Lost profits measures of damages
Damages for defective good
* value of goods as warranted - value of goods accepted
installment contract
- If a contract calls for payments in installments and a payment is not made, there is only a partial breach. The aggrieved party is limited to recovering only the missed payment, not the entire contract price.
- Unless acceleration clause.
intended 3rd party beneficiary
- intended 3rd party beneficiary are named in a contract and can enforce a contract.
- Whether a 3rd party contract can be modified or cancelled without 3rd party beneficiary’s Permission depends on whether the 3rd party’s rights are vested.
3rd Party Rights is Vested if:
1) The 3rd party is required to assent to contract,
2) 3rd party detrimentally relied on the contract, or
3) 3rd party brings a lawsuit to enforce the contract (must occur before cancelation or modification).
NOT VESTED- if a 3rd party merely learns of the contract.
assignment
- Generally benefits of a contract are assigned, and duties are delegated.
- cannot substantially change the obligor’s duties.
- Establishes privity of contract between the obligor and the assignee while extinguishing privity between the obligor and the assignor.
- Once the obligor has knowledge of the assignment, they must render performance to or pay the assignee
- Valid Assignment requires language of present transfer not future transfer (promise to assign is NOT language of present assignment)
- No consideration is needed to make a valid assignment.
- the last gratuitous assignee beats other gift asignees
- The first assignee for consideration wins over all subsequent assignees and previous gifts assignee.
- Even where an assignment is not permitted, an assignee without knowledge of the prohibition can still collect UNLESS null and void.
- A gift assigment can be revoked by the assignor accepting performance from the obligor.
delegation
- Generally benefits of a contract are assigned, and duties are delegated.
- personal service contracts or contracts involving unique skills cannot be delgated
- Prohibition against delegation is absolute.
- No assignments also = No delegations.
- Party’s with special skills can’t delegate.
- After a delegation the delegating party remains liable
- Delegation creates an intended third-party beneficiary.
