Contracts Flashcards
Contract definition
Promise which the law provides for a remedy when breached
Common law versus UCC Article 2
Common law - governs contracts
UCC Article 2 - governs sale of goods contracts
What’s a good?
All things movable at the time they are identified as the good to be sold (so doesn’t apply to property, services, memberships, etc.)
What is an Article 2 merchant?
One who regularly deals in goods of the kind.
Standard both parties must follow in UCC contract
good faith and fair dealing
Types of contracts
Express - oral or written
Implied - parties actions
Quasi-Contract - NOT CONTRACTS but court imposed to avoid unjust enrichment
Bilateral contract
consists of an exchange of mutual promises. Most contracts today are bilateral.
Unilateral contract
accpetane by performance - will pay once performance completed.
Only two kinds - (1) offeror indicates completion of performance only form of acceptance and (2) reward offer
Void contract
No legal effect - cannot be enforced
Voidable contract
Parties may elect to enforce a voidable contract
What questions do you ask to see if contract created?
(1) Was there mutual assent?
(2) Was there consideration?
(3) Any defenses to creation of contract?
What is mutual assent?
An offer AND acceptance before termination
What three elements does an offer need to be a valid offer?
(1) expression of promise, commitment
(2) certainty and definiteness in essential terms
(3) communication to offeree
What can a court look at to see if an offer was made?
(1) Language used
(2) Surrounding circumstances (made in jest/anger)
(3) Prior practice and relationship
(4) Method of communication
(COMPARE WITH MERE NEGOTIATIONS OR INVITATIONS TO OFFERS - advertisements construed as invitations to offers)
What required definiteness is required in an offer?
(1) Identify offeree
(2) Subject matter must be definite
What definiteness in an offer required: Real Estate
MUST identify land and price
What definitenes in an offer required: Sale of goods
MUST identify quantity
What is a Requirements Contract?
buyer promises to buy from seller all of the goods the buyer requires.
Demand for quantity must never be unreasonably disproportionate to any stated estimate or prior output
What is an Output Contract?
Seller promises to sell to buyer all of the goods seller produces.
Demand for quantity must never be unreasonably disproportionate to any stated estimate or prior output
What definiteness in an offer required: employment or service contact?
(1) All services besides employment - nature of the work
(2) Length of work - if none stated then considered terminable at the will of either party
Missing terms in the offer ok?
YES - court will supply reasonable terms if it appears parties intended to create a contract
True for if price is missing (except property) or time frame
Vagueness or terms to be agreed too later in offer/contact ok?
NO - makes contract too vague to be enforced. Can only be agreed to later if it isn’t material.
How do you terminate an offer?
(1) Revocation by offeror
(2) Termination by offeree
(3) Termination by law
How can offeror revoke contract?
(1) communicate it to offeree (effective when received)
(2) Offeree indirectly receives revocation and it is correct and from a reliable source (effective when received)
(3) publish it in same publication (effective when published)
Can you revoke option offers?
NO - offeree gave consideration for a promise not to revoke for a certain period of time
Can you revoke merchant firm offer under Article 2?
NO, if
(1) merchant
(2) offers to buy or sell goods
(3) signed in writing
(4) writing gives assurance it will be held open (if time period not specified then 3 months. Can be longer only if consideration offered)
Detrimental reliance or promissory estoppel definition
Offeror reasonably expects offeree to rely on the offer - and offeree does so rely - it becomes an irrevocable option contract for a reasonable length of time.
Can you revoke a unilateral contract after performance has begun?
NO - must give offeree reasonable time to complete performance.
Remember: prepping for performance may make it detrimental reliance/promissory estoppel
How can offeree terminate offer?
(1) express rejection
(2) Counteroffer if its on the same subject matter
Counteroffer versus mere inquiry
Does NOT terminate offer (would you consider…) - whatever a reasonable person would think is happening
When is rejection of offer effective?
When received by offeror
What happens when an offeree rejects an option contract?
It’s rejected - but time limit to keep it open doesn’t go away - offeree can come back and accept it in time period unless offeror detrimentally relied on offeree’s rejection
What events trigger termination of offer by law
(1) Death/insanity of either party
(2) Destruction of contract’s subject matter
(3) Supervening illegality
What is an acceptance?
Manifestation of assent to an offer
Right to accept transferrable?
NO - unless it was an option contract
When is a unilateral contract accepted?
Once performance completed. So no obligation to complete performance because acceptance doesn’t occur until it is completed
When is notice of an acceptance of unilateral contract required?
Not required - unless offeror wavied notice or performance would not normally come to offeror’s attention.
Difference between acceptance by bilateral or unilateral contract?
Unilateral - acceptance only by completion
Bilateral - accept by informing or BEGINNING performance
When is a bilateral contract accepted
Once it is communicated - unless offeror waives
How an you accept an offer to buy goods?
(1) Promise to ship
(2) Prompt shipment
Mirror Image Rule
Common law requires an absolute and unequivocal acceptance of each and every term of the offer
SHIPMENT of (not promise to ship) nonconforming goods is considered..
If no accomodation sent - acceptance and breach. Buyer can sue for damages
If accomodation sent - acceptance and no breach. Buyer can accept or reject. Seller not in breach if rejection.
Does UCC Article 2 accept mirror image rule?
NO - offeree can accept even by proposing additional terms.
Artcile 2 acceptance with additional terms
If nonmerchant involved - additional terms are proposals
If merchant involved - additional terms in contract, unless
(1) materially alter
(2) offer expressly limits acceptance to terms of offer
(3) offeror already objected to terms
Same rules apply to confirmatory memo
Mailbox Rule
Acceptance by mail creates a contract at the MOMENT OF DISPATCH, unless
(1) offer stipulates not effective till received
(2) option contract involved
(3) offeree sends rejection then acceptance - then whatever arrives first
Elements to have proper consideration
(1) Bargained-for exchange
(2) benefit to promisor or detriment to promisee
Promising to perform existing legal duty insufficient consideration, UNLESS
(1) New or different consideration promised
(2) Promise to ratify voidable obligation
(3) Owed to a different person and not promisor
(4) honest dispute as to duty
(5) modified and new consideration proposed
Does UCC need consideration?
NO - only needs good faith
Promissory Estoppel or detrimental reliance definition
There is no valid contract, but court enforces one because justice so requires:
(1) Promisor should reasonably expect to induce action or forebearance
(2) Such action or forebearance is induced
Defenses to Enforcing Contract - Five types of absence of mutual assent
Contract exists - but defense to enforcement exists:
(1) Mutual mistake to existing facts
(2) Transmission error
(3) Ambiguous contract language
(4) Misrepresentation
Mutual Mistake of Fact Defense Allowed
(1) Mistake concerns basic assumption on which contract made
(2) Has material effect on agreed-upon exchange
(3) Party seeking avoidance did not assume the risk
UNILATERAL mistake not allowed unless nonmistaken party knew of the mistake made by other party and said nothing.
Misunderstanding of terms defense
Neither or both party aware - no K unless both parties wanted same meaning
One party aware - binding K based on what ignorant party believed
Misrepresentation defense - Fraud in the inducement
One party induces another to enter into K using fraudulent misrepresentation - makes K VOIDABLE if innocent party justifiably relied
Misrepresentation defense - Nonfraduluent misrepresentation
Voidable by innocent party if relied on mispresentation and it was material
Defense to enforcing K - No Consideration
No contract exists - one of the promises always illusory
Defenses to enforcing K - Illegality
If consideration or subject matter illegal - then K void, unless
(1) only one person aware of illegality
(2) one party not as culpable
If only the purpose of K is illegal - K is voidable
Defense on Capacity: Infant
Under 18 - lack capacity, however
(1) Necessaries - minor liable for restitution for value received
(2) Can affirm upon attaining 18 (keep it going to expressly state it)
Defense on Capacity: Mental Capacity, Intoxication, Durress
Voidable K
Defense to enforcing K: Statute of Frauds
Certain K’s must be in writing (ANY EVIDENCE OF WRITING - no a K per se):
(1) Marriage
(2) Year (within one - lifetime within a year)
(3) Land
(4) Executor
(5) Goods ($500+)
(6) Surety
What do you have to prove to satisfy statute of frauds for nongoods?
(1) Something in writing (any type - can even be a collection)
(2) evidencing the essential terms
(3) Signed by party who will be charged
Unconsicionability
Refuse to enforce a provision or entire K to avoid unfair terms AT THE TIME K FORMED
Types of Unconscionability
(1) Inconspicuous Risk shifting provisions
(2) Take it or leave it contracts (Contracts of Adhesion)
(3) Exculpatory Clause (release from intentional act)
(4) Limits to certain remedies not applicable
What rules get greater weight in K interpretation
In order of preference:
(1) Express terms
(2) Course of performance
(3) Course of dealing
(4) Usage of trade
General K interpreptation rules
(1) Construed as a whole
(2) Ordinary meanings
(3) Written and typed over printed words
(4) Try to determine K valid
(5) Ambiguties construed against drafter
(6) Course of dealings
(7) Usage of trade
(8) Course of performance
Parol Evidence Rule
Parties express the writing embody the final expression of their bargain - writing is an “integration”
Partial integration versus Complete integration
Complete - writing cannot be contradicted or supplemented.
Partial - writing cannot be contradicted but may be supplemented by providing consistent additional terms
UCC presumes all writings partial integrations
When does parole evidence rule not come into play
(1) Formation defects (fraud, duress, mistake, illegality)
(2) Condition precedent to K effectiveness
(3) Interpretation
(4) True consideration paid
(5) Reformation
(6) Subsequent issues
Naturally Omitted Terms Doctrine
Evidence of terms that would naturally be omitted if
(1) does not conflict
(2) concerns a subject that would not ordinarily be expected to include in the K
Article 2 Gap Fillers
There must be quantity, then court will fill in the gaps even if the following missing:
(1) Price - reasonable price
(2) Place of delivery - seller’s place
(3) Time for payment - when buyer receives goods
(4) Assortment
Non-Carrier K: When does risk pass for sale of goods?
Seller is merchant - risk passes when buyer takes physical possession
Seller is not a merchant - risk passes upon tender delivery
Carrier K: When does risk pass for sale of goods?
Shipment K - ship by carrier but no particular destination - risk passes when goods delivered to carrier.
Destination K - requires particular destination- risk passes when goods delivered to destination
Time for payment for Carrier and Non Carrier K
Carrier: When buyer receives goods
Non-Carrier: Upon tender of delivery
Effect on breach for risk of loss
Nonconforming or Defective goods: Risk remains with seller and risk of loss doesn’t pass until defects cured or buyer accepts the goods despite defects.
Warranty of Title Definition
Automatic in every sale of good: Title is good and transfer is good, no liens or encumberences.
Can only disclaim by specific language
Warranty of Merchantability
Implied in every K by sale by merchant who deals in goods of the kind, good is fit for ordinary purpose
Disclaimer of merchantability must be part of the offer and acceptance process.
Warranty of Fitness
Implied when seller knows of buyer’s reasons and purpose for the goods, for buyer’s partciular purpose
Can disclaim by written disclaimer
Express warranties
In the K expressly written - very difficult to disclaim
Who do the warranties extend to?
Any natural person in the family or household or guest in buyer’s home, reasonable to assume they’d use or consume and suffered personal injury
Modifying K due to unforseen circumstances
no consideration needed if into performance and
(1) circumsances were unanticipatd when K made and
(2) it’s fair and equitable
OTHERWISE, consideration needed
Modificiation of K of good
UCC is liberal - only need a good faith promise of new and different terms
Modification of K - must it be in writing?
Non-good - NO - even if K says it has to be in writing.
Good - YES if over $500 (it’s an SOF issue)
No-Modification clause effect
Non-good: may be modified orally even if clause is there
Good: provision IS given effect. If between a merchant and nonmerchant, requires nonmerchants separate signature.
Waiver
Parties attempt to modify orally when it requires a written modification (good K). Court will find a waiver if other party changed position in reliance on the oral modification.
Performance under Common law vs. UCC
Common law: Party’s duty is to substantially perform
UCC: Perfect tender
Unconditional promise versus Failure of condition
Unconditional promise: failure of promise is a BREACH
Failure of a condition: RELEASES party from performing
Look at intent of parties to determine condition or promise distinction
Condition precedent definition
Must occur before an absolute duty
Conditions concurrent
Condition and promise occur together
Condition Subsequent
Cuts off already existing duty
Personal taste or judgment exception
K involving personal judgment as a condition of sanctification is ALLOWED if acted in good faith and promisor is PERSONALLY SATISFIED .
Impossibility will discharge liability when
(1) objective - absolutely NO chance of peformance
(2) arises AFTER K formation
(3) Either party may still sue for rescission and receive restitution of any goods delivered/payments made
Partial impossibility will discharge…
ONLY to the extent of the impossible duty - remainder of performance required
Temporary impossibility will only…
suspend K duties - no discharge
partial performance before impossibility will allow the party that performed
To recover resasonable value of his performance
Discharge based on death
Must be person necessary to effectuate the K. If the services can be delegated then K not discharged. Look at whether services were unique or not.
Discharge by Impracticability elements
(1) Extreme and unreasonable difficulty/expense
(2) Nonoccurence was a basic assumption of the parties
Hard test to meet - raw material increase of 50% not enough
Discharge by frustration elements
(1) Superverning Act
(2) Did not reasonably foresee the act during K formation
(3) Purpose of K almost completely destroyed
(4) Purpose of K realized by both parties at the time of K formation
Discharge by recission elements
Bilateral agreement: Only need express agreement - can be oral regardless of what written agreement says unless SOF issue
Unilateral agreement: Need new consideration by nonperforming party
WATCH OUT for third party beneficiary - if their right already vested cannot be discharged
Partial Discahrge by Modification elements
Only discharges those terms that were modified - not entire K - need to show:
(1) mutual assent
(2) consideration (except if article 2)
Discharge by novation elements
(1) previous valid K
(2) Agreement among all the parties
Discharge by cancellation
Look at the parties intent - new consideration not needed
Discharge by release
must have
(1) new writing
(2) new consideration
Discharge by accord and satisifaction
(1) Accord - agrees to accept new performance with new consideration (only suspends original requirement)
(2) Satisification - performance on the new accord.
Watch for check that states “full satisification” - easy way to satisfy discharge by accord and satisfaction
Breach of accord and satisfication
Debtor breached - Creditor can sue on original or accord
Creditor breached - (1) raise accord agreement or (2) wait until debtor damaged then bring breach of accord action
Discharge by lapse vs. Effect of Statute of limitations
Lapse - discharges K (immediately only if time is of the essence stated)
SOL - makes it unenforceable in court
Minor breach definition
obligee gained substantial benefit of her bargain - does not relieve aggrieved party of her duty to perform (just right to damages)
Major breach definition
obligee did not receive substantial benefit of her bargain - may treat contract as ending and pursue remedies
How do you determine if breach is material?
Look at
(1) Amount of benefit received
(2) Adequacy of compensation
(3) Extent of part performance
(4) Hardship
(5) Negligent behavior
(6) Likelihood that breaching party will perform
HOW LONG IT TOOK TO PERFORM AFTER DEADLINE - reasonable time allowed before considered breach
UCC Article 2 breach
Perfect tender rule - if not perfect, then considered breach of contract and buyer can, (1) reject all (2) accept all (3) accept some and reject rest Also entitled to damages
Specific Performance
court orders breaching party to perform
Available for
(1) land/rare/unique goods
Covenant not to Compete
(1) Services are unique
(2) covenant is reasonable
- protects a legitimate interest
- reasonable as to geographic location and duration
- No harm to public
Equitable defenses when P pursuing remedy
(1) Laches
(2) Unclean hands
(3) Sale to a bonafide purchaser
Right to Replevy Identified Goods partially paid
Buyer can claim the partially paid goods when
(1) seller becomes insolvent within 10 days after receiving buyers first payment, or
(2) purchased for personal, family, household purposes
Must pay rest of money
Right to recover goods from buyer due to buyer’s insolvency on goods partially paid
(1) reclaim the goods within 10 days after buyer’s receipt of goods
Right to demand assurances vs. Anticipatory repudiation
Right to demand assurances: Arises when one party has an insecurity with respect to a party’s performance - get it in writing - temporarily suspends performance. If not given within 30 days then can treat as repudiation.
Anticipatory repudiation: Need much more than an insecurity - need clear indication party is not going to perform
Compensatory Damages
Put nonbreaching party in position as if the promise had been performed (expectation damages), or that the contract had never been performed (reliance damages)
Consequential Damages
Special damages that reflect losses (loss profits) over expectation damages. Can recover these damages if
(1) At time K made, could have foreseen damages if K was breached
(2) could not avoid damages through reasonable efforts
(3) can be proved with reasonable certainty
In UCC case - only buyer can recover consequential damages
Incidental Damages
Only for UCC cases - damages include expenses reasonably incurred by inspection, shipping, storing, reselling goods
Damages cannot be….
SPECULATIVE - must be certain
Punitive Damages
Not awarded in K cases
Nominal damages
$1 can be awarded if breach shown but no damages
Liquidated damages
allowed - must be reasonable and damages difficult to estimate at K formation
Money damages available to BUYER when seller does not deliver
(1) Benefit of Bargin
Market price - Contract Price
OR
(2) Cover
Cost of replacement - K price
AND - BUYER GETS THESE
+ incidental damages + consequential damages - expenses saved
Money damages available to SELLER when buyer does not accept
(1) Benefit of Bargin (Market - K price)
(2) Resale (K price - resale price)
(3) Lost Profit (K price - cost of goods) - only available remedy is to loss volume seller
(4) Action for price (K price - only available if cannot be resold)
AND - SELLER GETS THESE
+ incidential damages - expenses saved
Damages in Employment Contract - Breach of Employee
Cost of replacing employee - amounts owed to employee for work done
Damages in Employment Contract - Breach of employer
Full Contract Price - amount employee made or would have made by taking similar position
Damages in Construction Contract - Breach by Owner
Before completion: (expected profit + costs expended)
After completion: K Price
Damages in Construction Contract - Breach by Builder
Cost of completion + damages from delay - quasi K recovery for benefit conferred by builder unless K required for full performance before receiving any money.
Restitution
When K is unenforceable or no K exists, restitutionary damages is available for an implied in law K, quasi K or quantum meruit.
Quasi K restitution available when
(1) P conferred a benefit
(2) P had reasonable expectation of being compensated
(3) D knew or had reasont o know P’s expectation
(4) D would be unjustly enriched
Recission Remedy allowed in
(1) Mutual mistake of fact
(2) Unilateral mistake
(3) Misrepresentation of fact or law
(4) duress, undue influence, illegality, capacity
Reformation remedy
Change the writing so it conforms to original intent of parties
Reform based on mistake
(1) An agreement between the parties
(2) agreement to put it in writing
(3) variance between original agreement and new writing
Reform based on misrepresentation
(1) Choose between reformation or avoidance
If reformation chosen, then the misrepresentation must relate to the content or legal effect of the record.
Statute of Limitations for breach of Sales K
Generally: 4 years from date of breach (can limit it to no less than 1 year)
Breach of Warranty: starts on delivery of goods
Express warranty: when buyer should have discovered
Implied warranty: starts on delivery of goods
Intended Third party beneficiary of K rules (incidental third partys never have rights)
Promisor and promisee can modify K until third party’s rights have vested. Intended third party rights do not vest until
(1) it manifests assent in a manner invited or requested by the parties (AWARENESS NOT ENOUGH - look for signs that they assesnted as well)
(2) justifiable reliance
(3) bring a lawsuit to sue under it
What K can be assigned?
All K’s may be assigned in any means possible (oral or written), unless
(1) substantially change the obligor’s risks
(2) assignment of future rights
(3) assignment prohibited by law
Clauses prohibiting assignment in K
Absent contrary language, only prohibit delegation of assignor’s duties. General clause will not prevent assignment, will give right to other party to sue
Assignments for value
(1) Done for consideration
(2) on preexisting debt
CANNOT be revoked
Gratuitous Assignments
Not done for value - CAN be revoked unless
(1) performance completed
(2) put in writing
(3) detrimental reliance or proimssory estoppel
Can assignee sue obligor?
YES - assignee (not assignor) becomes real party in interest
Can assignee sue assignor?
YES - if assignor
(1) has not made a prior assignment
(2) there was no right to assign
(3) interefers with assigned right
What K can be delegated?
All K’s may be delegated, except
(1) involve personal judgment or skill
(2) change obligee’s expectancy
(3) contractual restriction
Delegation and assignment used loosely and intertwined on exam
Novation
Substitute new party for old party - completely released old party - requires consent among all parties
What do you have to prove to satisfy statute of frauds for goods?
If both merchants - only need to have the terms in writing and no objection within 10 days of receipt.
How to determine between incidental and intended third parties
Look at
(1) is third party mentioned in K?
(2) Is performance to be made directly to third party
(3) third party control anything?
(4) Relationship with promisee
Implied contract in fact
formed by conduct between the parties, not oral or written language
