CONTRACTS Flashcards
What does the Uniform Commercial Code (UCC) apply to?
Transactions in goods
Common law applies to everything else (services) on the MBE.
What is required for the creation of an offer?
Intent to enter into a contract plus specific terms
Specific terms include price, quantity, and identity of the parties.
What are the four ways to terminate an offer?
- Lapse of time: an offer lapses after a reasonable time.
- Rejection (including counteroffer, which is a rejection and a new offer)
- Revocation
- Death or incapacity of offeror
What are the categories on which an offer cannot be revoked before acceptance?
FOUR
(A) Firm offer by a merchant in a signed writing under the UCC. This offer can be held open for a maximum of three months.
(B) Option contract: a promise to hold open the offer plus consideration for that promise.
(C) Unilateral contract: if the offeree begins performance on a unilateral contract, the offer is held open for a reasonable time.
(D) Reasonably foreseeable substantial reliance on the offer.
What are the two types of contract and how are each accepted?
- Bilateral contracts are accepted by a promise to perform or beginning performance.
- Unilateral contracts (rewards, prizes, or offers that specify they are unilateral) can only be accepted by full performance.
Tip: most contracts are bilateral.
How is an offer for sale of goods accepted?
Article 2: An offer for the sale of goods is accepted by promising to ship or shipping the goods.
What can happen if the seller ships defective goods?
If the seller ships defective goods with an accommodation letter, that constitutes a counteroffer. If there is no letter, it is an acceptance and a breach.
What is the mailbox rule?
Acceptance is effective when sent.
What are the exceptions to the mailbox rule?
An option contract (acceptance effective upon receipt) or if a rejection and then an acceptance is mailed (the one received first controls).
What is a firm offer under the UCC?
An offer by a merchant in a signed writing that can be held open for a maximum of three months.
How can an option contract be defined?
A promise to hold open the offer plus consideration for that promise.
How is acceptance effective according to the mailbox rule?
Acceptance is effective when sent.
What is the ‘mirror image’ rule in common law?
The acceptance must be the “mirror image” of the offer.
Under the UCC, what is unique about acceptance?
An acceptance does not need to mirror the offer and may have additional or different terms. Between merchants, an additional term will be a part of the contract unless it materially alters it, the offeror objects within a reasonable time, or the offer limits acceptance to the terms of the offer. Under the majority rule, a different term is knocked out and replaced with gap fillers.
What constitutes consideration in a contract?
A bargained-for exchange
The following are not consideration: a promise to make a gift, a moral obligation, past consideration, or an illusory promise.
What is reliance?
A substitute for consideration.
What happens if there is a promise and foreseeable and justifiable reliance?
Enforcement will be granted as necessary to avoid injustice.
What is required to modify a contract under common law?
Consideration is needed to modify a contract.
The performance of a preexisting legal duty is not consideration unless it falls into an exception. What are some of those exceptions?
Unforeseen difficulty, a good faith settlement of a lawsuit, a good faith payment in full of a due and disputed debt, a written promise to pay a time-barred debt, or if the duty was owed to a third person.
What is required to modify a contract under the UCC?
Only good faith is needed to modify a contract.
What is needed under common law for the other party’s duty to arise?
One has to substantially perform one’s duties in order for the other party’s duty to arise
What is the exception to the substantually performance of the common law?
The exception to the previous answer
Express condition (e.g., “I will buy it if I like it” or “I will buy it if I can get a 10% interest rate”). These must be complied with exactly.
Tip: courts find that most conditions are “constructive” and substantial performance is enough.
What is ‘perfect tender’ in the context of the UCC?
The seller has to deliver goods that meet the terms of a contract. The seller must provide perfect tender of the goods (or the buyer can reject the goods).
What can do the seller if he did not provide perfect tender and the buyer rejects the goods?
The seller only has an automatic right to cure if (1) there is time left to perform under the contract, or (2) the seller reasonably believed that the buyer would accept the nonconforming goods with or without a money allowance such as a discount (e.g., the seller sent better goods than contracted for).
What happens with the exception of the installment contract?
Regarding perfect tender
The buyer may reject an installment if there is a “substantial impairment” and the seller cannot cure the installment.
How revocation and rejection differ?
If the buyer accepts goods, he may not reject them. However, he may later revoke his acceptance. Revocation is a higher standard than rejection as it requires showing that the defect substantially impairs the value of the goods to him, among other things.
How delivery obligations work on carrier cases?
Most contracts are shipment contracts (e.g., the contract is silent or has shipping terms such as “FOB Seller’s Place of Business,” “CIF,” “C&F,” or “FAS”). The seller only has to get the goods to the shipper and the risk of loss (ROL) passes to the buyer at that point. For destination contracts (e.g., contracts that state, “FOB Buyer’s Place of Business” or “Ex-Ship”), the seller has to get the goods to the destination.
How delivery obligations work on non-carrier cases?
If the seller is a merchant, the seller must actually deliver the goods to the buyer for the ROL to pass. If the seller is not a merchant, the seller must tender delivery (make the goods available) for the ROL to pass.
What happens if the seller is on breach?
Regarding delivery obligations
If the seller is in breach, the ROL is on the seller until the defective goods are cured by the seller or accepted by the buyer.
True or false: A party is excused from performing if the other party breaches.
True
What is anticipatory repudiation?
Occurs when a party unequivocally breaches. If this occurs, the other party can sue immediately, suspend performance and wait to sue, treat the contract as discharged, or urge the other party to perform.
What is a prospective inability to perform?
Is when a party has reasonable grounds for insecurity that the other will not perform. The insecure party can demand adequate assurances that performance will take place. Note that conditions can also be waived.
What are the reasons for discharging duties?
- Occurrence of a condition subsequent
- Agreement:
- Frustration of purpose
- Impossibility
What is a condition subsequent regarding discharging of duties?
This is a condition that cuts off a duty. (E.g., “I will paint the house until it starts to rain.” The rain is a condition subsequent that cuts off the duty to paint the house.)
What are some examples of agreement regarding discharging of duties?
Examples include novation (a new party steps into the shoes of an existing party), modification, release, accord and satisfaction (the parties agree to new or different consideration), and rescission (the contract is undone).
What is an impossibility regarding discharging of duties?
An event that renders performance impossible occurs after the contract was made, it was not reasonably foreseeable at the time of the contract, the nonoccurrence was a basic assumption of the parties, neither party is at fault, and neither party bears the risk.
What is the definition of frustration of purpose?
The primary purpose of the contract known by both parties at the time of contracting is substantially frustrated by an unforeseeable event that occurred after the contract was entered into.
What are express warranties?
Affirmations of fact about the goods or a sample of the goods. These cannot be disclaimed. Mere “puffery” does not create an express warranty.
What is the implied warranty of merchantability?
Is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed (e.g., by express language such as a conspicuous “as is” clause or through conduct).
How an implied warranty of fitness works?
The implied warranty of fitness for a particular purpose can be made by any seller who knows of the buyer’s specific purpose and the buyer relies on the seller. It can be disclaimed.
Tip: the seller does not have to be a merchant.
What is a limitation of remedies clause?
A limitation of remedies clause is a contractual provision that limits or controls the remedies.
What is required for a limitation of remedies clause to be enforceable?
It is enforceable unless it is unconscionable or it “fails of its essential purpose.” The clause is unconscionable if it attempts to limit or avoid paying consequential damages for a personal injury due to a consumer product.
What is the general rule regarding contract interpretation?
Express terms control. Then courts look to course of performance, course of dealing, and trade usage
What are gap fillers?
The UCC has default rules for terms that govern contracts for the sale of goods if no term is stated in the contract (e.g., if nothing is said as to price, the price is a reasonable price at the time of delivery).
How does the the parol evidence rule (PER) work?
The PER applies when a party wants to add a term from preliminary negotiations to a final written agreement.
* If there is a complete integration, no terms will be admitted into evidence. Tip: look for a merger or integration clause in the contract; e.g., one that states, “this is
the full and final agreement.”
* If there is a partial integration, consistent additional terms are admitted.
* The PER does not apply to (FICCL) formation defenses, interpretation of a term, failure of a condition precedent, a clerical error, or a later modification.
Fill in the blank: A unilateral contract can only be accepted by _______.
full performance.
True or False: A requirements contract will fail for lack of quantity.
False.
What rights do Intended Third-Party Beneficiaries (TPBs) have under a contract?
They have rights once their rights vest.
When rights of Intended Third-Party Beneficiaries vest?
Rights vest when there is assent, reliance, or when the third party brings a lawsuit.
True or false: Incidental TPBs do have rights under a contract.
False
What factors determine if a TPB is intended?
(1) Is the TPB expressly designated in the contract?
(2) Is performance directly to the TPB?
(3) Does the TPB have any rights?
(4) What is the relationship between the TPB and the promisee?
What is the key difference between delegation and assignment?
Generally, one delegates duties and assigns rights (usually the right to be paid).
Under what conditions may a party delegate duties under a contract?
Generally, one may delegate duties under a contract unless the contract prohibits it or if the contract involves special skill, judgment, or trust.
What is NOT required for a delegation to occur?
Neither consent, nor consideration, nor a writing is needed to delegate a duty.
Under what conditions are the parts liable in a delegation?
The delegator remains liable on the contract after
delegation. The delegatee is liable if he receives consideration from the delegator.
What are the rules concerning assignment and revocation of rights?
Generally, rights can be assigned unless the assignment substantially changes the obligor’s duties or the contract prohibits it. An assignment may not be revoked if there was consideration given or if it is payment for a preexisting debt. An assignment is revoked if the assignor takes performance directly or makes a subsequent assignment to a different party.
What is the Statute of Frauds (SOF)?
It requires a writing signed by the party to be charged that evidences a contract.
The “party to be charged” generally means the defendant.
Which contracts fall under the Statute of Frauds?
(MYLEGS) contracts made in consideration of
marriage, contracts that cannot be performed within a year, contracts for the sale of land, promises made by an executor to pay a debt from his own estate, contracts for the sale of goods for $500 or more, and surety contracts.
What exceptions exist for the Statute of Frauds regarding land?
Part performance (when one’s actions evidence a contract; e.g., the buyer does two of the following three things: takes possession of the property, improves the land significantly, or pays a substantial amount of the purchase price).
What are the exceptions to the Statute of Frauds for the sale of goods?
(1) Merchants confirmatory memo exception
(2) when the seller has made a substantial beginning in manufacture or commitments for specially manufactured goods not suitable for sale to others in the seller’s ordinary course of business,
(3) judicial admissions (one admits in his pleadings, testimony, or in court that there is a contract—it is enforceable up to the quantity admitted), and
(4) part performance (one pays for or accepts a part of a contract).
What is required for a surety promise to fall within the SOF?
A promise to pay the debt of another if the other does not pay falls within the SOF unless the main purpose of the surety promise is to serve a pecuniary interest of the person making the promise.
What exception exists (to the SOF) when the contract cannot be perfomed within a year?
Full performance on one side will serve as a substitute for a signed writing.
Which are the capacity defenses?
Incapacity, duress and undue influence.
What constitutes incapacity under contract law?
Minors, mentally incompetent, or intoxicated persons.
However, they may be liable for “necessities.”
What is duress in contract law?
When a party threatens to commit a wrongful act that would threaten the other party’s finances, property, well-being, or life.
What is undue influence?
Unfair persuasion by a person in a position of trust or dominance.
Which are some of the lack of contract formation defenses?
- Mutual mistake
- Mutual misunderstanding
- Illegal subject matter
- Unconscionability
What is mutual mistake in contract law?
If both parties are mistaken about a basic assumption of fact that materially affects the agreed upon exchange and neither bears the risk, the contract is voidable.
What is unilateral mistake?
If a party knew or had reason to know of the other party’s mistake, the contract is voidable.
What happens in case of mutual misunderstanding?
There is no contract if both parties have a different understanding of a material term that is open to at least two reasonable interpretations and neither party has any reason to know of the meaning attached by the other.
How an illegal subject matter in a contract works?
The contract is void. If it is for an illegal purpose (e.g., leasing a car to transport drugs), it is voidable by the party who didn’t have the illegal purpose (e.g., the car owner) if he didn’t know the purpose or he knew of the purpose but didn’t facilitate it and it doesn’t involve “serious moral turpitude.”
What are the two elements of unconscionability?
Procedural unconscionability (an unfair bargaining process—e.g., hidden or incomprehensible terms) and substantive unconscionability (grossly unfair terms). This is voidable.
What are some other defenses?
Regarding lack of contract formation
Fraud, misrepresentation, nondisclosure, and public policy.
What does expectation damages refer to?
This is the loss of value of the breaching party’s performance plus incidental damages plus consequential damages minus any expenses saved as a result of the breach. Mitigation of damages is required.
What are incidental damages?
Are those related to avoiding the loss from the breach e.g., storing goods after a breach).
What are consequential damages?
Are those that are foreseen at the time the contract is entered into.
What does a seller receive if they breach and the buyer has goods?
Buyer gets the value of the goods as contracted for minus the value of the goods as delivered plus incidental and consequential damages.
What does a seller receive if they breach and the seller has goods?
Buyer gets the difference between the market price (or replacement price) and contract price plus incidental and consequential damages minus expenses saved.
What does a seller receive if the buyer breaches and the buyer has goods?
Seller gets the contract price.
What does a seller receive if the buyer breaches and the seller has goods?
Seller gets the difference between the contract price and market price (or resale price) plus incidental damages minus expenses saved.
What happens with the lost volume seller?
UUC formula
The seller gets lost profits plus incidentals.
Tip: A seller is a lost volume seller when there is an unlimited amount of the product available. The MBE fact pattern will make this very clear
Which are the equitable remedies?
Specific performance, injuction, rescission and reformation.
When the remedy of specific performance can be used?
Not usually available unless the goods are unique or if it is a land contract.
What is an injunction?
Is an equitable remedy that tells a party to do
or not do something. An injunction for a noncompete clause will be granted so long as the covenant is reasonable in time, scope, and geography.
What is rescission in contract law?
Is undoing the contract when the contract is void
or voidable or because it is impossible to perform.
When is the remedy of reformation used?
Is a remedy either party may seek when the contract does not reflect the terms that the parties agreed to.
What is restitution?
Restitution means the plaintiff recovers the value of the benefit conferred. This remedy may be sought when the contract is breached, when it is unenforceable, or when there is no contract. Restitution is granted in contracts that are implied in law (i.e., quasi-contracts), which arises when the plaintiff has conferred a benefit on the defendant, the plaintiff reasonably expected to be paid, and the defendant would be unjustly enriched otherwise.
What are liquidated damages clauses?
Liquidated damages clauses are enforced if the damages are difficult to estimate at the time the contract was made and a reasonable forecast of damages.
What are the penalties in contract law?
Not permitted under contract law.
