Contracts Flashcards
Past Consideration/Moral Obligation
Common Law: Not valid consideration, nor is it a substitute for consideration.
Exception: Expressly requested by promisor, and expectation of payment by promisee
Requirements Contracts
Don’t require a set quantity under the UCC.
Options
A promise to keep an offer open for a period of time.
Common Law: Must be supported by consideration
UCC: Merchant’s Firm Offer Rule - Offer by a merchant in a signed writing, which by its terms gives assurance that it will be held open, is irrevocable during the time stated. And if no time is stated, then the period of irrevocability cannot exceed 90 days.
Quasi-Contract
Only choose when:
1) No formal agreement between the parties
2) Evidence of unjust enrichment
Battle of the Forms
UCC, and only if both parties are merchants
1) If the offeree accepts the offer, and at the same time makes a material alteration, the terms of the offer controls. The alteration is out.
2) If the offeree accepts, and makes a NONmaterial change, that nonmaterial change is included in the contract, unless the offeror timely objects.
3) Material change = substantially affects money/liability/remedy
Perfect Tender Rule (UCC Only)
Seller has to deliver perfect tender to a buyer. Unless delivery includes notice of accommodation, treat it as a counter-offer that buyer must accept/reject, can’t sue.
If seller fails, buyer has 3 options:
1) Buyer can accept the goods, and pay the contract price
2) Buyer can timely reject the goods and sue for damages
3) Buyer can accept in-part and reject in-part
Statute of Frauds - Application
Requires objective proof (i.e., performance or writing)
Applies to:
1) Service contract not capable of being performed within one year from time of contract
- Does not include contracts for life
2) Sale of goods, $500 or more
- Oral contract btw merchants, subsequently followed by a writing, is okay. 10-day rule exception. Sender is bound immediately, recipient is bound if no response within 10 days
3) Suretyship
- Main purpose exception: if main purpose of guarantor is to benefit themselves, then no S/F issue
4) Transfers of interest in real estate (except leases less than 1 year)
Unilateral Mistake
General Rule: Will not prevent contract formation
Exception: If non-mistaken party knows (or should have known) of the other party’s mistake, and is trying to take advantage of it, they will not be permitted to enjoy the benefit of the bargain.
Mutual Mistake
If that mistake goes to the essence of the agreement, will be grounds for rescinding the contract.
Modifications
Common Law: Need new consideration
UCC: Must be entered into in good faith
Source of Terms - Parol Evidence Rule
Source of contract terms
Relates to earlier words of one or both parties
1) Changing/contradicting terms in the written deal –> cannot be considered
2) Mistake in integration (clerical error) –> YES
3) Defenses (getting out of a written deal) –> YES
4) Ambiguity (explaining terms) –> YES
5) Adding to the written deal –> Yes, unless complete integration
Third-Party Beneficiaries
Vesting of Rights
1) Learn of the contract, and they assent to it
2) Learn of the contract, and rely on it
3) Learn of the contract, and sue to enforce their rights
Effect of Vesting
- Prior to vesting, the contracting parties can cancel or modify the agreement
- After vesting, contracting parties cannot cancel or modify without the consent of that beneficiary
Promissory Estoppel
1) A promise
2) Expectation of reliance on that promise
3) Reliance
4) The interests of justice require enforcement of the promise
Shipping Terms (UCC Only)
F.O.B. is followed by one of three phrases:
1) Seller’s place of business - buyer bears the risk of loss once the goods leave (Shipment Contract)
2) Buyer’s place of business - seller bears the risk of loss until they reach (Destination Contract)
3) Point of destination - seller bears the risk of loss until they reach (Destination Contract)
Assignments and Delegation
All contracts are assignable and delegable, except long-term requirement contracts and unique personal service contracts.
Can be in writing or oral.
Can be for value or gratuitous. Gratuitous assignments are generally viewed as being revocable, unless there has been some reliance.
Accord and Satisfaction
Accord: A new agreement entered into by parties who are already under agreement with each other. Suspends performance of the old agreement, until accord is satisfied or unsatisfied.
If unsatisfied, the other party can sue under either the original agreement or the accord.
Don’t need new consideration. Just a new type of obligation.
Anticipatory Repudiation
Need a clear statement of an intent not to perform.
Gives rise to immediate claim for damages, unless claimant has already finished performance.
Repudiation: Okay as long as no material change in position by other party
Material vs. Nonmaterial breach
Material: Can cancel the entire agreement.
Nonmaterial: Can’t cancel the agreement. Just sue for damages
Impossibility
In a personal service contract, if you are too sick or too injured to perform, you are excused for that period of time, and you will not be liable for damages unless the contract provides otherwise.
Condition Precedent
An act or event that must occur first before a party is under a duty to perform.
Failure of a condition does not breach.
Liquidated Damages
Only allowed if two factors:
1) At the time of entering into the contract, damages are difficult to ascertain
2) The provision itself must be a reasonable forecast of compensatory damages.
Lost Profits Doctrine
Under the UCC
Must be dealing with a volume seller, with an unlimited supply of goods at their disposal.
If so, they can seek lost profits against the breaching buyer.
Applicable Law
If sale of goods, look for some special Article 2 rule
If mixed deal, usually all or nothing. Look for most important part, unless contract divides payment
Unilateral Contract Offer
Results from an offer that expressly requires performance as the only possible method of acceptance
Offer
Look for: manifestation of commitment by one party
Missing Content
- Price? No offer if sale of real estate
- Vague or material terms (e.g., appropriate, fair, reasonable)? No offer
- Quantity in a requirements/output contract? Okay under Article 2. Buyer can reasonably increase
Advertisement with price quotation is NOT an offer, unless:
1) If it is the nature in reward
2) If it specifies quantity and expressly indicates who can accept
3) If sent in response to an inquiry
Termination of Offer
1) Lapse of time
2) Death/incapacity of a party prior to acceptance
- Except for irrevocable offers
3) Word or conduct of offeror (i.e., revocation)
4) Words or conduct of offeree (i.e., rejection)
Revocation of Offer
How? Unambiguous statement or conduct by offeror to offeree of unwillingness or inability to contract
Irrevocable offers
1) Options
2) UCC Firm Offer Rule
3) Reliance (reasonably foreseeable reliance, and detrimental)
4) Unilateral Contract - Start of performance (not mere prep)
Rejection of Offer
1) Counteroffer
- Rejects and creates a new offer
- Does not include mere bargaining
2) Conditional Acceptance
- Common Law: rejects and becomes a counteroffer that can be accepted by conduct
- UCC: rejects
3) Mirror Image Rule (common law only)
- treats additional terms as a counteroffer
- If sale of goods –> battle of the forms
Methods of Acceptance
Offeror can control method of acceptance
Look for following fact patters where offer is silent on method:
1) Offeree starts to perform
- Start of performance is treated as an implied promise to perform
- Exception: unilateral contract offers
2) Distance and delay in communications
- All communications (other than acceptance) effective when received
- Acceptance is effective when mailed (mailbox rule)
- If rejection is mailed before acceptance, then neither is effective until received
- Cannot use mailbox rule to meet an option deadline
3) Seller sends wrong goods
- Generally this is acceptance and breach
- Accommodation: counteroffer and no breach
Accepting person
Generally only by person who knows of offer at time she accepts and person to whom it was made
Offers cannot be assigned
Options CAN be assigned
Consideration
Definition: Bargained for legal detriment
Analysis
1) Identify the promise breaker
2) Ask whether that person asked for something in return for her promise (bargain)
3) Look at person trying to enforce, and ask what legal detriment that person sustained
Watch for:
1) Past consideration
2) Pre-existing contractual duty
3) Part payment as consideration for release
Pre-existing contractual or statutory duty
Common Law: Not new consideration
- Exception: addition to or change in performance
- Exception: unforeseen difficulty so severe as to excuse performance
- Exception: 3rd party promise to pay
Article 2: No new consideration requirement. Modification must be in good faith
Part payment for release (debt settlement)
If debt is due and undisputed, then party payment is not consideration for release
Substitutes for Consideration
1) Written promise to satisfy an obligation for which there is a legal defense
2) Promissory estoppel
3) Seals (not in IL)
Defendant Promisor’s Lack of Capacity
Who lacks capacity? Infant (under 18), mental incompetents, intoxicated persons if other person has reason to know
Consequences of incapacity
1) Right to disaffirm by person without capacity
2) Implied affirmation by retaining benefits after gaining capacity (ratification)
3) Quasi-contract liability for necessaries
Statute of Frauds - Satisfaction
Performance
- Real Estate: part performance (improvements, payment, and/or possession)
- Services: full performance by either party
- Sale of Goods:
a) Part performance satisfies for delivered ordinary goods
b) Part performance of specially manufactured goods is satisfied once seller makes substantial beginnings
Writing
- Common Law: Look for all material terms (who and what). Satisfied if D signed
- UCC: Must indicate contract for sale of goods and quantity term. Signed by D (unless 2 merchants and failure to respond)
- Judicial admission
- Estoppel (oral agreement, P asks for it in writing, D promises to put in writing but does not)
Authorization to Contract on Behalf of Someone Else
Equal dignity with the contract = if contract is within S/F, authorization must be written
Written Proof of Modification
1) Look at the deal with the alleged change
2) Determine whether the deal, with the alleged change, would be within S/F. If so, then modification must be in writing
Contract Provisions Requiring Written Proof
- Common Law: Not effective
- UCC: Effective unless waived
Illegality
If subject matter is illegal –> unenforceable
If underlying purpose is illegal –> enforceable
Public Policy
Courts will use discretion to find certain kinds of agreements unenforceable. Look for:
1) Exculpatory agreements that exempt for intentional/reckless conduct; OR
2) Unreasonable covenants not to compete
Misrepresentation
1) State of “fact” before the contract
2) By one of the contracting parties/agent
3) That is false
4) and induces the contract
Nondisclosure
Generally not a problem. Look for fiduciary-like relationship or concealment
Duress
Physical duress: Unenforceable
Economic Duress
1) “bad guy” - improper threat, usually to breach existing contract
2) “vulnerable guy” - no reasonable alternative
Undue Influence
Undue influence: 1) special relationship btw. parties + 2) improper persuasion of the weaker by the stronger
Unconscionability
Tested at time of the agreement
Procedural: Unfair surprise
Substantive: Oppressive terms
Ambiguity in Words of Agreement
No agreement if:
1) Parties use a material term that is open to at least two reasonable interpretations
2) Each party attaches a different meaning to the term
3) Neither party knows or has reason to know the term is open to two different interpretations
Sources of terms of contract
1) Written terms in contract
2) Parol Evidence
3) Conduct
4) UCC for sale of goods
Source of Terms - Conduct
Courts will consider in this order:
1) Course of Performance (same parties, same dealing)
2) Course of Dealing (same parties, different but similar dealing)
3) Custom and Usage (different parties, different but similar dealing)
Risk of Loss (UCC Only)
In this order:
1) Agreement of parties controls
2) Breaching party is liable for uninsured loss, even if breach is unrelated to loss
3) Common carrier delivery - risk shifts once seller completes delivery obligations
4) Catch-all:
- If seller is a merchant, shifts on buyer’s receipt
- If seller is nonmerchant, shifts when seller tenders
Warranties of Quality (UCC Only)
1) Express: Look for words that promise, describe, or state facts
2) Implied Warranty of Merchantability
- If seller is a merchant, who deals in goods of the kind sold
- Warranty: goods are fit for ordinary purposes
3) Implied Warranty of Fitness for a Particular Purpose
- If buyer has particular purpose, relying on seller, seller knows and reliance
- Warranty: goods fit for particular purpose
Limits:
1) SoL: 4 years from tender of delivery
2) Privity: P must have contracted with D
3) Buyer’s examination of goods: no warranties if defects are obvious and buyer examines
4) Disclaimers
- Express warranties can’t be disclaimed
- Implied can be if conspicuous OR “as is”
5) Can limit remedies
Rejection of Goods (UCC Rule)
1) If no perfect tender, buyer can reject goods and sue for damages
2) Buyer must take reasonable care of rejected goods
3) Limited by cure, installment contracts, and acceptance
Cure (UCC Rule)
Seller can sometimes get a second chance to make perfect tender
1) Seller has reasonable ground to believe that imperfect tender would be acceptable; OR
2) Time for performance has not yet expired
Installment Contracts (UCC rule)
Requires or authorizes a) delivery of the goods in separate lots b) to be separately accepted.
Buyer can only reject where there is a substantial impairment that cannot be cured
Acceptance of Goods (UCC Rule)
If buyer accepts the goods, it can’t later reject
1) Payment without opportunity to inspect ≠ acceptance
2) Failure to reject after reasonable time = acceptance
3) Keeping goods without objection = implied acceptance
Revocation of Acceptance of Goods (UCC Rule)
Similar to rejection of goods, but it comes after acceptance.
Requirements
1) Nonconormity substantially impairs the value of goods; AND
2) Excusable ignorance of grounds for revocation, or reasonable reliance on seller’s assurance of satisfaction; AND
3) Revocation within a reasonable time after discovery of noncomformity
Specific Performance/Injunction
Equitable remedy: so look for adequacy of remedy at law, unclean hands, or other parties’s equities
Available where:
1) Sale of Real Estate
2) Sale of Goods: Unique goods
3) Services: No specific performance, but maybe injunctive relief
Reclamation from Insolvent Buyer of Goods
1) Buyer was insolved at the time it received the goods
2) Seller demands return of goods within 10 days of receipt
3) Buyer still has goods at time of demand
Expectation Damages
1) Look to facts for dollar value of performance without breach
2) Look to facts for dollar value of performance with breach
3) Compare the two to determine the amount of damages
UCC Damage Rules
Seller Breached
- If buyer keeps goods: (FMV if Perfect) MINUS (FMV as delivered) or (cost of repair)
- If seller has goods: (Market price at discovery of breach) OR (reasonable replacement price), whichever is greater
Buyer Breached
- If buyer keeps goods: (contract price)
- If seller has goods: (resale, unless seller cannot resell)
Remember: Lost profits for lost volume seller
Incidental Damages
Costs incurred in dealing with the breach (replacement, storage, etc.)
Always recoverable
Consequential (special) Damages
Foreseeable losses that are special/unique to this particular P
Available if D had reason to know of special circumstances at time of contract
Avoidable Damages
No recovery for damages that could have been avoided without undue burden.
D’s burden to prove
Uncertain Damages
No recovery for damages that can’t be established with reasonable certainty
Liquidated Damages
Okay if:
1) Damages were difficult to forecast at time contract was made
2) Provision is a reasonable forecast
Excuse - Insecurity about Other Party
1) Reasonable grounds for insecurity
2) Written demand for adequate assurance
3) Commercially reasonable to stop performance
Excuse - Improper Performance
Article 2: Perfect Tender
Common Law: Only a material breach by one party excuses performance
Excuse - Nonoccurrence of Express Condition
1) Express Condition
- Language in a contract, limiting obligations
2) Strict Compliance is required for satisfaction of condition
- Exception: Satisfaction provision only requires “honest and good faith dissatisfaction”
3) Can be eliminated by:
- Waiver
- Prevention: Protected party bars occurrence
Recission
Cancellation of a contract
Must occur when there is still performance remaining from each of the parties
Novation
Definition: An agreement between both parties to an existing contract, to substitute a new party (same performance, new party)
Damage or Destruction of Contract’s Subject Matter
Common Law: Ask “can the party still perform?”
- If house gets burned down, that depends if contract was to paint or to build house
Article 2:
- If risk of loss on buyer –> buyer pays
- If risk of loss on seller –> seller only has to pay if unidentified goods
Death AFTER Contract
1) Death does not make a person’s contract obligations disappear
2) But if death of “special” person, excused performance
Subsequent law or regulation
1) Later law makes performance of contract illegal? Excused
2) Later law makes mutually understood purpose of contract illegal? Excused by frustration of purpose
Third-Party Beneficiary (TPB)
Cancellation
- Can’t cancel/modify without consent if TPB’s interests have vested
- Vested if TPB knows of and has relied on or assented as requested
Who can sue?
1) Beneficiary can recover from promisor
2) Promisee can recover from promisor
3) Beneficiary cannot recover from promisee
- Exception: Creditor beneficiary can recover on pre-existing debt
Defenses: promisor can assert any defenses he could have used against promisee
Assignment of Rights
Definition: Transfer of rights under a contract. There must first be a contract between other parties
Limitations
1) Prohibitions: Assignor is liable for breach, but assignee can still enforce the assignment
2) Invalidations: Can be no assignment
3) Can never make an assignment that substantially changes the duties of the obligor
4) Consideration is generally not required, but can be revoked if gratuitous
Who can sue?
1) Assignee can sue obligor
2) Assignor for consideration cannot recover from obligor
3) Obligor has same defenses against assignee as it would against assignor
4) Payment by obligor to assignor is effective until obligor knows of assignment
5) Assignee can sometimes sue assignor
Implied Warranties of Assignor for Consideration
1) Right assigned actually exists
2) Right assigned is not subject to any then existing defenses by obligor
3) Assignor will do nothing after the assignment to impair the value
Multiple Assignments
1) Gratuitous Assignments: Last assignee wins
2) Assignments for consideration: First assignee for consideration wins
- Exception: BFP, basically. Must be first to obtain payment, judgment, novation, or indicia of ownership
Delegation of Duties
Definition: Party to a contract transfers work under that contract to a third party
Distinguished from assignments: Assignments transfer benefits/rights; delegation is a transfer of duties/burdens
Which duties are delegable? All of them, except:
1) contract prohibits delegations OR assignments
2) personal services contract that requires very special skills
Nonperformance by delegate
1) Delegating party always remains liable
2) Delegatee is liable only if she receives consideration from delegating party
