Contracts Flashcards
What governs contracts for the sale of goods?
Article 2 of the Uniform Commercial Code (UCC) governs all contracts for the sale of goods.
How are goods defined under the UCC?
Goods are defined as all things that are movable at the time of identification to the contract (other than the money), including crops and the unborn young of animals.
What law governs contracts that do not pertain to goods?
Common law governs contracts that do not pertain to goods, such as service or construction contracts.
How is the governing law determined for mixed contracts?
For mixed contracts, the predominant purpose of the contract determines which law governs. If the predominant purpose is the sale of goods, the UCC applies; if for services, the common law applies.
What are the requirements to form a valid contract?
To form a valid contract, there must be:
- mutual assent (an offer and acceptance),
- adequate consideration or a substitute,
- compliance with the Statute of Frauds, and
- no defenses to formation.
What constitutes mutual assent?
Mutual assent consists of:
- offer – manifestation of present intent to enter into a contract with definite terms and communicated to the offeree, and
- acceptance – manifestation of assent to the terms of the offer
What is the effect of silence on acceptance?
Silence generally does NOT manifest acceptance, but performance may be adequate.
How can offers be terminated before acceptance?
Offers can be terminated by:
- revocation by the offeror,
- rejection or counter-offer by the offeree,
- lapse of time,
- death or incapacity of either party
- destruction of subject matter, or
- supervening illegality.
When is an offer irrevocable?
Some offers are irrevocable, such as:
- option contracts when consideration is given for a promise to keep an offer open
- merchant’s firm offer,
- offers relied on to the offeree’s detriment, and
- start of performance on a unilateral contract, which makes the offer irrevocable for a reasonable time to complete performance
What is a Merchant’s Firm Offer?
A Merchant’s Firm Offer is an offer to buy or sell goods by a merchant in a signed writing stating it will be held open and is not revocable for a specified time, not exceeding three months.
Are advertisements considered offers?
Advertisements are generally NOT considered offers but may be if they include sufficiently clear and definite terms.
What is the Mailbox Rule?
Under the Mailbox Rule, acceptance is effective once sent, while revocation is effective when received.
What is the mirror image rule?
The common law mirror image rule states that acceptance must exactly mirror the offer; otherwise, it constitutes a counter-offer.
What is an implied-in-fact contract?
An implied-in-fact contract is created by the conduct of the parties without spoken or written words, if the conduct is intentional and understood as an agreement.
What are output and requirement contracts?
Output contracts require a seller to sell all output of particular goods, while requirement contracts require a buyer to purchase all goods they require from the seller.
What is consideration in contract law?
Consideration is a bargained-for exchange of a promise for a return promise or performance that benefits the promisor or causes detriment to the promisee.
What is promissory estoppel?
Promissory estoppel applies when a party reasonably relied to their detriment on the promise of another party, and enforcement is necessary to avoid injustice.
What is required for a party to have capacity to enter into a contract?
A party must have capacity to enter into a contract; contracts entered into by a person without capacity are voidable.
What is unconscionability in contract law?
Unconscionability occurs when a contract or term shocks the conscience of the court, usually if it is both substantively and procedurally unconscionable.
What is mutual mistake?
A contract is voidable due to mutual mistake when both parties are mistaken about a basic assumption, the mistake is material, and the person asserting the mistake did not bear the risk.
What contracts require a signed writing under the Statute of Frauds?
Contracts requiring a signed writing include marriage contracts, suretyships, contracts not fully performed in 1 year, contracts for the sale of real property, promises to pay estate debts, and contracts for the sale of goods for $500 or more.
What are exceptions to the Statute of Frauds?
Exceptions include full performance, partial performance in land contracts, judicial acknowledgment, and estoppel.
What is the Parol Evidence Rule?
The Parol Evidence Rule states that a binding integrated agreement discharges prior agreements that are inconsistent with it.
What does the original contract state about modifications?
Modifications must be made in writing.
What does good faith mean in contract law?
Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing.
What is the Parol Evidence Rule?
Under the Parol Evidence Rule, a binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
What are the exceptions to the Parol Evidence Rule?
The four exceptions are: (1) to correct a clerical error; (2) to establish a defense against formation; (3) to interpret vague terms; (4) to supplement a partially integrated writing.
What is a partially integrated writing?
A partially integrated writing does not contain a complete statement of all the terms agreed upon, allowing proof of additional terms that do not contradict the writing.
What is a fully integrated writing?
A fully integrated writing is a complete and exclusive statement of the terms, discharging prior agreements within its scope.
What governs Delivery of goods and Risk of Loss?
The terms of the parties’ agreement govern Delivery of goods and Risk of Loss. If not agreed upon, the UCC supplies default terms.
What happens to Risk of Loss if a breach occurs?
Typically, the Risk of Loss remains with the breaching party, even if the loss is unrelated to the breach.
What is the difference between a Shipment Contract and a Destination Contract?
In a Shipment Contract, Risk of Loss passes to Buyer when goods are delivered to the Carrier. In a Destination Contract, it passes when goods are delivered to Buyer.
When does Risk of Loss pass to the Buyer for Merchant Sellers?
Risk of Loss passes to Buyer upon receipt of the goods.
What is a condition precedent in a contract?
A condition precedent makes performance conditional upon the completion of the condition.
What is the Frustration of Purpose Doctrine?
It discharges performance under a contract if the purpose no longer exists due to an unforeseeable event outside the parties’ control.
What discharges performance due to impossibility?
Performance is discharged when it is objectively impossible due to death, destruction of subject matter, or unanticipated law changes.
What is impracticability in contract law?
Performance is discharged as impractical when an unanticipated event occurs, making performance extremely difficult or expensive.
What is a waiver in contract law?
A waiver is a voluntary relinquishment of a contract right by words or conduct.
What is accord and satisfaction?
A party is excused from obligations when there has been an accord, which is an executory contract promising to relieve obligations in return for a specific act.
What distinguishes a minor breach from a material breach?
A material breach excuses the non-breaching party’s performance, while a minor breach does not.
What does a ‘time is of the essence’ clause imply?
Failure to perform by a specified date is a material breach only if the contract contains an explicit ‘time of the essence’ clause.
What is the UCC Perfect Tender Rule?
Under the UCC, a seller must deliver conforming goods, and the smallest non-conformity is a breach.
What are the conditions for acceptance of goods under the UCC?
Acceptance occurs when the buyer signifies conformity, fails to reject after inspection, or acts inconsistent with seller’s ownership.
What is anticipatory repudiation?
Anticipatory repudiation occurs when a party unequivocally communicates that they are unable or unwilling to perform.
What is the implied obligation of good faith and fair dealing?
Every contract contains an implied obligation requiring parties to act honestly and fairly.
What is an express warranty under the UCC?
An express warranty is created when a seller makes an affirmation of fact or description that becomes part of the basis of the bargain.
What is the Implied Warranty of Merchantability?
It requires that all goods sold by a merchant must be fit for their ordinary purpose.
What is the Implied Warranty of Fitness for a Particular Purpose?
It is created when a seller knows the buyer’s particular purpose and the buyer relies on the seller’s skill or judgment.
What language is sufficient for a disclaimer of the implied warranty of merchantability under the UCC?
Language such as ‘as is’ or ‘with all faults’ or language that puts the buyer on notice is sufficient.
What creates an implied warranty of fitness for a particular purpose under the UCC?
An implied warranty of fitness is created when: (1) a seller knows or has reason to know of the buyer’s particular purpose; AND (2) the buyer relies on the seller’s skill or judgment.
How can an implied warranty of fitness be disclaimed?
It can be disclaimed by: (a) conspicuous writing; (b) conspicuous ‘as is’ language; (c) waiver upon inspection; OR (d) course of dealing or usage of trade.
What are conspicuous terms in a disclaimer?
Conspicuous terms include: (i) a heading in capitals or contrasting type; or (ii) language in larger type or set off by symbols.
What is the status of third-party beneficiaries in contract law?
An intended third-party beneficiary can assert a claim for breach as they have rights under the contract.
What distinguishes an intended third-party beneficiary from an incidental beneficiary?
An intended third-party beneficiary has rights under the contract, while an incidental beneficiary does not.
When do the rights of an intended third-party beneficiary vest?
Rights vest when the beneficiary: (a) manifests assent; (b) detrimentally relies; OR (c) brings suit to enforce the contract.
What are the conditions under which contract duties are not delegable?
Duties are not delegable if: (a) the contract prohibits it; (b) it is against public policy; (c) it involves personal services; OR (d) it materially alters the obligee’s expectancy.
What is required for a valid assignment of rights under a contract?
An assignment requires: (1) the assignor’s intent to transfer; AND (2) the assignee’s assent.
What limitations exist for assignments?
An assignment is invalid if it materially alters the contract, is prohibited by law, or is precluded by contract.
In what situations is a gratuitous assignment irrevocable?
A gratuitous assignment is irrevocable if: (a) a symbolic document is delivered; (b) there is detrimental reliance; (c) the obligor performs; OR (d) it is in writing and delivered.
What is a novation in contract law?
A novation occurs when all parties agree to discharge an original party and substitute a third-party.
What are the available legal remedies for contract breaches?
Available remedies include: (1) expectation damages; (2) reliance damages; (3) consequential damages; (4) incidental damages; AND (5) restitution damages.
What are expectation damages?
Expectation damages aim to put the non-breaching party in the position they would have been in but for the breach.
What are reliance damages?
Reliance damages are expenditures made in reliance on a contract, aiming to restore the party to the position they would have been in if the contract never existed.
What are consequential damages?
Consequential damages arise indirectly from the breach and are awarded due to the injured party’s special circumstances.
What are incidental damages?
Incidental damages are reasonable costs incurred as a result of a breach of contract.
What is restitution in contract law?
Restitution is awarded to prevent unjust enrichment and is based on the value of the benefit conferred.
What are liquidated damages?
Liquidated damages are enforceable if the amount is difficult to estimate at the time of contract formation and is reasonable.
What can a buyer recover for a breach of contract concerning the sale of land?
A buyer may recover: (1) any amount paid; (2) the difference in fair market value; (3) expenses incurred; AND (4) possible consequential damages.
What remedies does a seller have under the UCC when a buyer breaches?
A seller may withhold delivery, cancel, recover cover damages, market damages, lost profits, stop delivery, or replevy identified goods.
What is the purpose of a quasi-contract?
A quasi-contract is implied by law to prevent unjust enrichment of the defendant.
What is reformation in contract law?
Reformation allows a contract to be changed to conform to the parties’ original intent due to misrepresentation or mutual mistake.
What are the requirements for a plaintiff to be compensated under a quasi-contract?
The plaintiff must have a reasonable expectation of compensation, the defendant must have requested the benefit (express or implied), and the defendant would be unjustly enriched if not compensated.
What types of damages may be awarded under a quasi-contract?
Only restitution or reliance damages may be awarded.
What is reformation in contract law?
Reformation allows a contract to be changed to conform to the parties’ original intent if there was a misrepresentation or mutual mistake of a material fact.
When is a unilateral mistake sufficient for reformation?
A unilateral mistake is sufficient if the non-mistaken party had reason to know of the mistake.
When will a contract not be reformed?
A contract will not be reformed if a valid equitable defense applies, such as unclean hands or laches.
What is admissible to prove misrepresentation or mistake in reformation?
Parol evidence is admissible to prove the misrepresentation or mistake.
What does rescission do to a contract?
Rescission treats the original contract as cancelled.
When is rescission available?
Rescission is available if there was a problem with the formation of the contract, such as fraud or misrepresentation.
Can a plaintiff sue for both damages and rescission?
Yes, a plaintiff may sue for both damages and rescission at the same time, but an election of remedies may bar rescission if damages are sought first.
When will a contract not be rescinded?
A contract will not be rescinded if a valid equitable defense applies or if the plaintiff sued for damages under the contract in a prior action.
What is specific performance in contract law?
Specific performance is a remedy when a valid contract exists with clear terms, the plaintiff has performed or is ready to perform, legal remedies are inadequate, enforcement is feasible, and no valid defenses exist.
What are examples of situations where legal remedies are inadequate?
Examples include rare or unique items and contracts involving the sale of land.
What is the common law doctrine of mutuality in specific performance?
Under the common law doctrine of mutuality, both parties must have been able to request specific performance.
How is the requirement for mutuality met in many jurisdictions?
In many jurisdictions, the requirement for mutuality is met if one party can sufficiently assure performance.
