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Bar Prep Countdown > Contracts #2 > Flashcards

Contracts #2 Flashcards

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1
Q

When a K involves both the sale of goods and service Ks –> how do you determine whether UCC applies?

A

Look at the predominant purpose of the K

Factors:

(1) Nature of suppliers business
(2) Language of K
(3) Value of the goods vs. Value of the services

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2
Q

How does an offer terminate?

A

(1) LAPSE - either after the time specified in the offer or after a reasonable time has passed.

To determine what is “reasonable” time –>

(1) Market conditions
(2) Subject matter of the K
(3) Degree of urgency
(4) Means of transmission

(2) DEATH OR INCAPACITY
(3) REVOCATION BY THE OFFEROR

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3
Q

Terminating an Offer via “Revocation by the Offeror”

A

The offeror can revoke the offer at any time, as long as it occurs BEFORE acceptance AND it’s been communicated to the offeree.

Can be communicated to the offeree either

(1) Directly; or
(2) Indirectly –> The offeror’s actions are inconsistent with their intent to go through with the offer and the offeree learns of this from a reliable source.

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4
Q

How to prevent revocation from occurring?

A

(1) OPTION K
(2) RELIANCE/CONSTRUCTION - Offeree has detrimentally relied on the offer.
(3) FIRM OFFER UNDER UCC

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5
Q

Firm Offer under the UCC

A

Irrevocable offer by a merchant under the UCC to buy/sell goods without consideration

Requirements:

(1) Offer made by a merchant
(2) In a writing signed by the merchant
(3) Expressly stating that the offer will be held open

Offer is held open for the duration of the time specified or for a reasonable time. But not for more than 3 months.

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6
Q

Ways the Offeree can Reject the Offer, thus terminating it

A

(1) Outright rejection
(2) Rejection via counteroffer
(3) Rejection via non-conforming acceptance
(Mirror Image Rule requires that acceptance mirror the offer’s terms. Note that it’s a common law rule).

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7
Q

Is a mere inquiry a counteroffer?

A

NO

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8
Q

Unilateral K - Common Law Rule vs. Modern/Majority Rule

A

COMMON LAW: Acceptance only occurs upon completion of the performance

MODERN/MAJORITY: Once offeree begins performance, an option K has been created and offeror may not revoke.

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9
Q

Common Law - Acceptance Requirements

A

(1) Mirror the terms of the offer; AND
(2) Be communicated to the offeree

EXCEPTIONS to the communication requirement:

(1) Unilateral K
(2) Mailbox Rule

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10
Q

What type of Ks does the Mailbox Rule NOT apply to?

A

Option Ks OR if the offer expressly provides otherwise

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11
Q

Mailbox Rule

A

ONLY acceptances are valid upon the date of dispatch, as long as they’re validly sent.

N/A to option Ks, if the offer states otherwise, for any other form of communication, or if rejection is also sent first.

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12
Q

How can a seller accept a buyer’s offer to purchase goods for prompt or current shipment?

A

(1) Promise to ship conforming goods
(2) Prompt or current shipment of conforming goods; OR

(3) Prompt or current shipment of non-conforming goods –> Both acceptance and a breach!

NOTE: If the seller sends the goods as an accommodation, then the seller has not accepted the offer. Instead, the seller has made a counter offer, which the buyer is free to accept or reject.

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13
Q

If a seller’s acceptance to a buyer’s offer contains terms that are absent in the offer or different from the offer –> is there an enforceable K?

A

YES - a valid, enforceable K has been formed

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14
Q

If a seller’s acceptance to a buyer’s offer contains terms that are absent in the offer or different from the offer –> AND at least one party is a consumer –> what is the effect of the additional/different terms?

A

The terms are just proposals unless the consumer expressly agrees to the additional/different terms.

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15
Q

If a seller’s acceptance to a buyer’s offer contains terms that are absent in the offer or different from the offer –> AND both parties are merchants –> What is the effect of the additional/different terms?

A

For the additional terms –> they become a part of the K UNLESS

(1) The offer expressly conditioned acceptance to its own terms
(2) The other party objects to the terms within a reasonable time; OR
(3) The terms materially alter the K (causing surprise or hardship if incorporated without express awareness by the other party)

For the different terms –>
Majority: Different terms knock each other out
Minority: Different terms are just proposals.

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16
Q

Conditional Acceptance + Non-conforming acceptance?

A

NOT A VALID K – the non-conforming acceptance only serves as a counteroffer

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17
Q

Illusory Promise

A

Promise of performance, but it leaves performance to the discretion of the promising party.

So - the promise of performance is NOT consideration.

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18
Q

Gratuitous Promise

A

A promise to make a gift is generally unenforceable due to insufficient consideration.

BUT a gratuitous transfer is legally binding. It requires (1) present intent to give the gift AND (2) symbolic or actual delivery.

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19
Q

Past or Moral Consideration

A

Generally, a promise in exchange for something already given or already performed is NOT enforceable.

UNLESS –

(1) It’s a written promise to pay a debt that has been discharged by the statute of limitations or by bankruptcy
(2) Material Benefit Test (Minority Rule)

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20
Q

What is the Material Benefit Test?

A

MINORITY RULE

A promise made based on past benefits becomes enforceable IF:

(1) The promisee conferred a benefit onto the promisor (NOT A THIRD PARTY) and
(2) The benefit is material.

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21
Q

Promissory Estoppel

A

Promisee reasonably relies to his detriment on a gratuitous promise –> can be enforceable even without consideration if the following is met

(1) A promise
(2) Foreseeable reliance
(3) Actual reliance (induced by the promise)
(4) Injustice without enforcement

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22
Q

If a K falls under the Statute of Frauds - Requirements?

A

Must be in writing + signed by the party against whom enforcement is sought

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23
Q

Ks that fall under the Statute of Frauds

A

MYLEGS

(1) Marriage Ks
(2) Ks greater than 1 year

*These Ks are measured from the date K was formed. Cannot include lifetime Ks. Must be impossible to be completed within 1 year.

(3) Land Ks (future conveyances)
(4) Executor Agreements
(5) Guarantee or Suretyship Ks

  • EXCEPT: when creditor is discharging original debtor from his obligation b/c of the third-party guarantee OR when the guarantor is acting to protect his own economic interests (main purpose rule)
    (6) Sale of Goods > $500
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24
Q

Statute of Frauds - Writing Requirement

A

Can be a memo of the agreement from before, during, or after formation of the K.

Requires the following terms:

(1) Identity of the parties to the transaction
(2) Nature and subject matter of the K
(3) Essential terms (i.e., price and date of performance) –> Price can be omitted or left open. If omitted, then reasonable price at time of delivery.

(4) Land sale Ks –> need legal description of the land (but an address is ok)

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25
Q

Statute of Frauds - Signature Requirement

A

Any symbol with the intention to authenticate (i.e., stamp, initials, letterhead, etc.) is sufficient.

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26
Q

Statute of Frauds - Tacking

A

Writing doesn’t need to be a single document. Multiple documents can be tacked together to collectively satisfy the Statute of Frauds.

All documents are signed OR the signed document incorporates the unsigned documents by reference

Otherwise, SOF can be satisfied if:

(1) There is at least 1 signed writing unambiguously establishing a contractual relationship
(2) The signed and unsigned documents clearly refer to the same subject matter; and
(3) Clear and convincing evidence of agreement to the unsigned documents by the party against whom enforcement is sought.

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27
Q

When will a SOF-violating K still be enforceable for performance?

A

LAND SALE Ks –> At least 2 out of the following

(1) Payment of all or part of the purchase price
(2) Taking possession of the land
(3) Making substantial improvements to the land

ONE-YEAR Ks –> If fully performed (otherwise might be able to recover reasonable value for part performance)

Sales of Goods K –> Part performance

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28
Q

Can a party recover for benefits conferred under an unenforceable oral K?

A

YES - but recover only for the value of the benefits conferred.

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29
Q

Promissory Estoppel for Unenforceable Oral Ks

A

Can be applied in the following circumstances

(1) Where one party promised to create the signed writing and the other party relies on that promise (and no signed writing was ever created) –> most courts will apply promissory estoppel
(2) Just reliance on the underlying oral K –> Majority rule is to apply, but a substantial minority of states will refuse to apply promissory estoppel.

30
Q

Satisfying the UCC Statute of Frauds

A

Applies to sale of goods > $500

(1) Signed Writing –> Must include the quantity to be enforceable UNLESS - other language in the K provides clear basis for measuring quantity or it’s an output/requirements K

(2) Merchant’s confirmation
(3) Judicial Admission
(4) Partial Performance; OR
(5) Specialty Manufactured Goods

31
Q

Satisfying the UCC Statute of Frauds - Merchant’s Confirmation

A

2 merchants enter into oral agreement. 1 sends the other written confirmation of agreement.

This will satisfy SOF if the recipient fails to object within 10 days.

The written confirmation must be:

(1) Sufficient (signed + quantity term)
(2) Writing is in confirmation of the K
(3) Sent within a reasonable time after formation.
(4) Based on a real agreement or discussion between the parties
(5) Must be actually received

32
Q

Satisfying the UCC Statute of Frauds - Judicial Admission

A

Party admits K formation in a pleading, testimony, etc.

But the K is enforceable only up to the quantity admitted.

33
Q

Satisfying the UCC Statute of Frauds - Partial Performance

A

Enforceable for

(1) Goods for which payment has been made/accepted
(2) Goods which have been received/accepted

If the goods are divisible, then the K is only enforceable for the amount delivered/paid for.

If the goods are NOT divisible, then partial payment will make the entire K enforceable.

34
Q

Satisfying the UCC Statute of Frauds - Specially Manufactured Goods

A

All of the following must be true:

(1) Specially manufactured good for buyer
(2) Not suitable for sale to others
(3) Substantially began to manufacture or made commitments to get
(3) Actions to begin manufacture or procure occurred
(a) under circumstances which reasonably indicate that the goods were for the buyer AND
(b) before the seller received notice of the buyer’s revocation

35
Q

If Statute of Frauds invalidates the K, available alternative enforcement mechanisms are …

A

(1) Recovery for the Benefits Conferred
(2) Promissory Estoppel –> requires detrimental reliance on unenforceable oral K

If one party promises the other party he’ll make the signed writing (and other party relies on the promise so doesn’t take any steps) –> promissory estoppel applies

But if there’s no assurances - the other party just relies on the oral K itself –>
MAJORITY - apply promissory estoppel
MINORITY - promissory estoppel does NOT apply.

36
Q

UCC Statute of Frauds

A

Applies to Ks for sale of goods of $500 or more under the UCC SOF.

Satisfied by

(1) Signed writing
(2) Merchant’s confirmation
(3) Judicial Admission
(4) Partial Performance
(5) Specially Manufactured Goods

37
Q

UCC Default Rules for the Sale of Goods - Implied Warranties

A

(1) Warranty of Title
(2) Warranty of Merchantability
(3) Warranty of Fitness for a Particular Purpose

38
Q

Warranty of Title

A

Promise that

(1) Good title to the goods
(2) Rightful transfer of the goods
(3) No liens attached to the goods

-
Can be excluded or modified by (1) specific language or (2) circumstances which give the buyer reason to suspect seller does not claim unencumbered title

39
Q

Warranty of Merchantability

A

That the goods are fit for ordinary purpose for which the goods would be used

ONLY applicable if the seller is a merchant.

Can be disclaimed but the disclaimer must:

(1) specifically use the word “merchantability” and be conspicuous in the writing; OR
(2) Any other language or circumstances would be reasonably understood by a buyer as excluding the warranty

40
Q

Warranty of Fitness

A

Goods are fit for the particular purpose the buyer intends to use them for

Only applies when, at the time of contracting, the seller has reason to know:

(1) the particular purpose for which the goods are required AND
(2) the buyer is relying on the seller’s expertise to select reasonable goods.

41
Q

Negating Warranty of Fitness

A

Negated when

(1) the disclaimer is written, clear, and conspicuous, OR
(2) Goods have patent defects which were easily detectable.

42
Q

UCC Default Rules for the Sale of Goods - Express Warranties

A

Goods will conform to some standard.

This arises whenever the seller expressly makes them as part of the basis of the bargain in the following ways:

(1) Any affirmation of promise or fact;
(2) Any description of the goods
(3) Any sample or model
(4) Need not use the words “warrant” or “guarantee” to create but a mere affirmation of the value of the goods (puffing) does not create value.

43
Q

What if price term is missing? (UCC)

A

Pick the reasonable price at the time established by the K for delivery.

44
Q

What if the time term is missing? (UCC)

A

Pick a reasonable time.

45
Q

What if the place is missing? (UCC)

A

Assumer seller’s place of business (FOB seller)

46
Q

What if the price term is missing in a service K?

A

Reasonable value for services rendered

47
Q

Good Faith and Fair Dealing

A

Part of BOTH UCC and Common Law

Being honest (and merchants have additional obligation to observe reasonable commercial standards of fair dealing in their trade).

Output/Requirements K –> Whoever determines amount of goods sold does so in good faith

48
Q

Interpreting Ambiguous Language - Generally

A

Objective > Subjective meaning EXCEPT when:

(1) Party has reason to know of the other party’s subjective understanding (so subjective controls); OR
(2) At the time of contracting, both parties shared a subjective understanding (so subjective controls)

49
Q

Interpreting Ambiguous Language - Contra Proferenem

A

Construe against the drafter any ambiguous terms

50
Q

Interpreting Ambiguous Language - Doctrine of Reasonable Expectations

A

Unambiguous terms can be interpreted against the drafting party if they conflict with the reasonable expectations of the other party

(1) only applies to defeat enforcing boilerplate terms inconsistent with the purchaser’s reasonable expectations

Usually applied to insurance contracts or Ks of adhesion (boilerplate Ks)

51
Q

What can extrinsic evidence be used for?

A

Extrinsic evidence can be used to fill in gaps (supplement Ks) and resolve ambiguities (explain terms).

CANNOT be used to contradict the express terms of the K.

52
Q

What if trade usage, course of dealing, and/or course of performance conflict?

A

Course of performance TRUMPS all.

Otherwise Course of Dealing > Trade Usage.

53
Q

Parol Evidence Rule

A

Governs the admissibility of oral and documentary evidence of negotiations and other communications between the parties that took place prior to OR during execution of the K

54
Q

Partial/Full Integration vs. Complete Integration

A

Partial integration –> The terms within the K are intended as the final expression of those terms.

Complete integration –> The K is intended to represent a complete and exclusive statement of all the terms

To determine if there’s partial or complete integration –> look for a merger clause (something in the K stating that the writing contains the complete/entire agreement)

55
Q

Parol Evidence Rule - What is permissible/impermissible?

A

Explain/interpret terms? –> ALWAYS PERMISSIBLE

Supplement? –> ADMISSIBLE UNLESS K is completely integrated.
(BUT under the UCC, trade usage, course of dealing, and course of performance can be used to supplement a completely integrated K)

Contradict –> NOT Admissible

56
Q

Parol Evidence Rule does not apply to . . .

A

(1) Subsequent agreements entered into AFTER the execution of the written document.
(2) Collateral agreements (entirely distinct from the K at issue)
(3) Attacks on the validity of the written agreement

57
Q

Type of Proof Permitted to Attack the Validity of a K

A

(1) Failure of oral condition precedent
(2) Mistake or duress
(3) Fraud
(4) Reformation –> Must show
(a) was an antecedent valid agreement
(b) was incorrectly recorded due to mistake or fraud; and
(c) proof by clear and convincing evidence

58
Q

UCC - Shipment Contract

A

FOB Seller.

Seller promises to turn the goods over to the carrier

Once the goods have been delivered to the carrier, the risk of loss is on the buyer. So, if the goods are damaged in transit, the buyer bears the loss.

59
Q

UCC - Destination Contract

A

FOB Buyer

Seller promises to tender delivery at a particular destination.

Once the goods have been tendered at the location specified in the K, the risk of loss is then on the buyer. So, if the goods are damaged in transit to the location, the risk of loss is on the seller.

60
Q

UCC - K is silent re shipment – default?

A

Shipment K –> FOB Seller

Buyer bears the loss for goods damaged in transit.

61
Q

UCC - What if there’s no agreement to use a common carrier?

A

If the seller is not a merchant, the risk of loss is on the buyer upon delivery (tendered).

If the seller is a merchant, then the risk of loss is on the buyer only when the goods are physically in the buyer’s possession.

62
Q

Common Law - Modifying a K

A

Pre-Existing Duty Rule: Increasing compensation for duties already owed is an UNENFORCEABLE modification.

BUT, the following are permissible modifications:

(1) Mutual modification of an existing K if (a) both parties agree to different performance than originally required and (b) the difference is not a mere pretense of a newly formed bargain.
(2) Unforeseen circumstances –> increased compensation is given in exchange for the same performance that has become substantially more burdensome than reasonably anticipated when the K was formed

63
Q

UCC - Modifying a K

A

No consideration needed. Just needs to be made in good faith.

64
Q

Excusing Performance due to Faulty Assumptions

A

(1) Mistake
(2) Impossibility
(3) Impracticality
(4) Frustration of Purpose

65
Q

Mistake

A

Must significantly impact the value of transaction for 1 or both parties

66
Q

Unilateral Mistake

A

1 party’s mistake about material facts at the time of contracting

NOT excused unless:

(1) Other party knew or had reason to know of the mistake; OR
(2) Serious clerical error and reliance (BUT won’t be excused if the error was caused by extreme negligence or the other party relied on the clerical error)

67
Q

Mutual Mistake

A

Both parties had a common faulty understanding re present facts.

Voidable by the DISADVANTAGED party when:

(1) Mistake relates to material facts;
(2) Mistake made by both parties;
(3) Disadvantaged party did not bear the risk of mistake

68
Q

Impossibility

A

Both parties excused if performance was rendered impossible by the events that occurred AFTER the K was formed.

Requirements:

(1) Impossibility is objective - literally impossible for anyone due to circumstances outside control
(2) Contingency that creates the impossibility arose after making the K and was unknown/un-anticipated by the parties

NOTE: available under both common law and UCC

69
Q

Impracticality

A

Unforeseen difficulties made performance prohibitively expensive or otherwise extremely burdensome

Requirements:

(1) Impracticality was unforeseen
(2) Risk was neither assumed nor allocated by the parties
(3) Increased cost / burden of performance would now be far beyond what either party anticipated

NOTE: Under the UCC, there will always be business risks. For this to apply, a shortage needs to be caused by war/embargo, local crop failure, or unforeseen shutdown of supply like a natural disaster.

70
Q

Frustration of Purpose

A

The value to the receiving party is dramatically reduced.

Receiving party’s obligation is discharged when:

(1) Principal purpose in entering the K is substantially frustrated
(2) Frustration was substantial in nature; and
(3) Non-occurrence of the event that cause frustration was a basic assumption of the K

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