Contracts Flashcards

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1
Q

Applicable Law

A

UCC for sales of goods; Common Law for everything else

Mixed deals - more important part controls, unless contract expressly divides payment

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2
Q

Definition of Contract

A

An (1) Agreement that is (2) Legally enforceable

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3
Q

Agreement Analysis

A
  1. Offer?
  2. Termination of Offer?
  3. Acceptance of Offer?
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4
Q

Offer

A

An offer is:

  1. an expression of a promise, undertaking, or commitment to enter into a contract
  2. with certain and definite terms
  3. communicated to the offeree

General Test: Look for a Manifestation of Commitment (whether a reasonable person would believe that his assent would create a contract).

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5
Q

Terms in an Offer

A
  • Price Required in Contract for Sale of Land
  • Material Terms cannot be vague
    • Example of vague terms (appropriate, reasonable, fair)
    • Requirement/output contracts not vague
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6
Q

Termination of Offer

A
  1. Lapse of Time (time stated or reasonable time)
  2. Death of either party
    • Except Irrevocable Offers
  3. Revocation (by words or conduct of offeror known to offeree)
    • Except Irrevocable Offers
  4. Rejection (by words or conduct of the offeree known to offeror); can be direct or indirect, indirect includes
    • Counteroffer (distinguish bargaining)
    • Conditional Acceptance (I accept if)
    • Mirror Image Rule (common law)
    • Additional or Different Terms (UCC)
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7
Q

UCC Firm Offer Rule

A

An offer cannot be revoked for up to 3 months if:

  1. It is in writing
  2. signed promise to keep open
  3. party is a merchant
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8
Q

Conditional Acceptance

A
  • Common Law: Rejection and counteroffer that can be accepted by conduct
  • UCC - Rejection only (not counteroffer that can be accepted by conduct)
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9
Q

Mirror Image Rule

A

(Common law) Acceptance must mirror offer to be a valid acceptance, otherwise it is rejection and counteroffer

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10
Q

Additional terms in acceptance of a sale of goods contract

A
  1. There is an acceptance
  2. Are the new terms part of the contract?
  • Yes, if both parties are merchants and the term is not material or objected to
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11
Q

Acceptance

A
  • Contract can state manner of acceptance
  • Start of performance is acceptance (unless unilateral contract)
  • Mailbox Rule: Acceptance effective when sent, all other communications effective when received
    • Does no apply to option contract
  • Seller send wrong goods: Generally, acceptance and breach,
    • unless accomodation (explanation), then it is counteroffer and no breach
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12
Q

Reasons an agreement may not be legally enforceable

A
  1. Lack of Consideration
  2. Lack of Capacity
  3. Statute of Frauds
  4. Existing Laws Prohibit Performance
  5. Public Policy
  6. Misrepresentations
  7. Nondisclosure
  8. Duress
  9. Uncoinsionability
  10. Ambiguity
  11. Mistake as to Material Fact
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13
Q

Consideration

A

Bargained for Legal Detriment

  • Does modification require new consideration
    • Common Law - Yes
    • UCC - No (only requires good faith)
  • Promise to pay a due and undisputed debt is not consideration
  • Consideration Substitutes
    • Written promise to satisfy an obligation for which there is a legal defense
    • Promissory Estoppel
      • promise
      • reliance that is determintal and reasonable/foreseeable
      • enforcement necessary to avoid injustice
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14
Q

Lack of Capacity

A
  • Infancy (under 18)
  • Mentally incompetant
  • Intoxicated (and other person has reason to know)

Party lacking capacity can disaffirm

If party gains capacity, they impliedly affirm if they do not disaffirm in a reasonable time

Consider quaid-contract

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15
Q

Statute of Frauds

(Contracts w/in SoF)

A

Contracts within SoF require proof (writing or enforcement to be enforceable); contracts within SoF:

  1. Suretyship: Promises to Answer for Debt of Another
  2. Not Capable of Performance within a Year
    • from date of contract
    • SoF does not apply to tasks of unspecified length or contracts for life
  3. Transfers of Real Estate
    • Except leases for 1 year or less
  4. Sale of Goods for more than $500
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16
Q

Statute of Frauds

(How to Satisfy with Performance)

A

Generally, contracts within SoF require proof (writing or performance) to be enforceable.

  • Performance
    • Real Estate: any 2/3 of improvements, payments, and possession
    • Service Contracts
      • Full performance of either party satisifies
      • Part performance does not satisfy
    • Sale of Goods:
      • Ordinary goods: part performance satisfies to the extend of performance
      • Specially manufactured goods: satisfies once seller makes a “substantial beginning”
        *
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17
Q

Statute of Frauds

(How to Satisfy with Writing)

A

Contracts w/in SoF requires proof (performance or writing) to be enforceable

Writings that Satisfy:

  • Common Law Contracts
    • All material terms (who and what)
    • Signed by persons asserting defense
  • UCC Contracts
    • Quantity Term
    • Signed by defendant unless both parties are merchants
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18
Q

Modifications and Statute of Frauds

A

If contract with modification would be within SoF, then modification must satsify SoF

  • Common Law - contract provisions requiring modifications be in writing are invalid (ignore)
  • UCC - contract provisions requiring modifications be in wirting are valid
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19
Q

Misrepresentation and Nondisclosure

A

Contract not legally inforceible if:

  • Misrepresentation
    • statement of “fact” before contract
    • by party or agent
    • is false
    • induces contract
  • Nondisclosure where there is a fiduciary-like relationship
    • no general duty to disclose
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20
Q

Duress/Undue Influence

A
  • Physcial duress = no contract
  • Econimic duress = no contract if threat is improper and and threatened party is vulnerable
  • Undue influence = no contract if one party takes advantage of special relationship with weaker party by means of improper persuasion.
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21
Q

Unconscionability

A

No unconsionable contracts, i.e., contracts with

  1. unreasonable surprise (procedural) and
  2. oppressive terms (substantive)
22
Q

Ambiguity

A

No contract if

  1. both parties use a material term with two reasonable interpretations
  2. each party attaches a different meaning
  3. netierh party knows of the other possible interpretations
23
Q

Mistake as to Material Fact

A
  • Mutual Mistake
    • Relief if both parties are mistaken, but no relief for party bearing risk of mistake
  • Unilateral Mistake
    • Generally no relief, unless the other party had reason to know of mistake (palpable mistake)
24
Q

Terms of Contract and Parol Evidence

A

Generally contract is primary source of terms

Parol Evidence: evidence from prior to integration used to interpret contract terms

  • Cannot be used to change/contradict terms in contract
  • Can be used to determine mistake in integration
  • Can be used to to establish a defense to contract (fraud, misrepresenation, duress, etc.)
  • Can be used to resolve ambiguity
  • Can be used to add terms if the contract was a partial integration
25
Q

Terms of Contract (Conduct)

A
  1. Course of performance: same people, same contract
  2. Course of dealing: same people, different contract
  3. Custom and Usage: similar people, similar contract

Consider in order. Used to fill gaps in contract.

26
Q

Terms of Contract (UCC: Delivery Obligations on Seller)

A
  1. Delivery Obligations of Seller (if by Common Carrier)
    1. Shipment Contract - Seller completes delivery when:
      • delivery to common carrier
      • reasonable arrangment for delivery
      • notifies buyer
    2. Destination Contract - Seller completes delivery
    • Consider FOB [origin or destinaction] city
27
Q

Terms of Contract (UCC: Risk of Loss)

A

Risk of Loss

  • After contract formed, but before buyer receives goods, goods are damaged/destroyed, and neither party is at fault; how to handle? Who bears the risk?
  • Rules (do in order)
    1. Agreement (if specified, this controls)
    2. Breach (breaching party bears risk of loss)
    3. Common Carrier Delivery (risk shifts to buyer when seller completes delivery obligations)
    4. If seller is merchant, risk of loss ships on buyers receipt; in non-merchant, risk of loss ships on sellers tender (makes available) of goods
28
Q

Terms of Contract (UCC: Warranties of Quality)

A
  • Express (promises, statements of fact, or look for sample or model)
  • Implied Warranty of Merchantability
    • A merchant dealing goods of the kind warrants they are fit for ordinary purposes
  • Implied Warranty of Fitness for a Particular Purpose
    • Buyer has a particular purpose of which seller is aware, warrants goods are fit for particular purpose
  • Limitations
    • 4 year statute of limitations from tender of delivery
    • No implied warranty where buyer examined
    • Disclaimer
      • Express warranties cannot be disclaimed
      • Implied warraties must be disclaimed in a conspicuous manner, specifically mentioning the warranty, or with a statement such as “as is”
29
Q

Nonperformance of Common Law Contract

A

The Material Breach Rule:

  1. Damages can be recovered for any breach
  2. Only a material breach excuses nonperformance
  3. Materiality of breach is a fact question
  4. If there is substantial performance, the breach is not material

*Material breach could be quality or quantity related

30
Q

Performance of Article 2 Contracts

(6 Concepts)

A
  1. Perfect Tender
  2. Rejection of the Goods
  3. Cure
  4. Installment Contracts
  5. Acceptance
  6. Revocation of Acceptance
31
Q

Perfect Tender (3 things to know)

A
  1. Only applies to the sale of goods (UCC)
  2. It means only that the goods and the delivery must conform to the contract terms
  3. Less than perfect tender by the seller gives the buyer the option to keep the goods and sue for damages or send the goods back, recovering payments and possibly sue for damages.
32
Q

Rejection of the Goods

(4 things to know)

A
  1. Disinguish rejection of an offer, from rejection of goods
  2. Buyer has option, in good faith, to reject if seller fails to meet perfect tender standard
  3. Buyer must take reasonable care of rejected goods and cannot continue to use them
  4. Right to reject is limited by cure, installment contracts, and acceptance
33
Q

Right to Cure

A

In some instances, a seller who fails to make perfect tender will be given the option to cure:

  1. Seller reasonably believed the nonperfect tender would be acceptable (here, seller can cure even after delivery date)
  2. Time for performance not yet expired
34
Q

Right to Reject an Installment

A

Only when there is a substantial impairment in the installment that cannot be cured

35
Q

Acceptance of Goods

(3 things)

A
  1. If the buyer accepts the goods, he can not later reject them
  2. Payment without the opportunity to inspect is not acceptance
  3. Failure to timely reject is acceptance (retention of the goods is implied acceptance)
36
Q

Revocation of Acceptance of Goods

A

Once the buyer accepts the goods, he cannot reject them; he may, however, be able to revoke the acceptance, which has the same effect as rejection

Requirements:

  1. Nonconformity substantially impairs the value of the goods
  2. Exusable ignorance of the grounds for revocation and reasonable reliance on seller’s assurance of satisfaction
  3. revocation within a reasoanble time after discovery of the nonconformity
37
Q

Third-Party Contract Issues (3)

A
  1. Third-party beneficiaries
  2. Assignment of Contract Rights
  3. Delegations of Contract Duties
38
Q

Third-Party Beneficiary

A

Vocab:

  • Third party beneficiary (must be intended)
  • Promissor: person who will benefit the TPB
  • Promisee: person obtaining the promise that benefits the TPB
  • Creditor/Donee

Can’t cancel contract once TPB knows of and has relied on contract

Either TPB or Promissee can recover from Promissor

Promissor can assert any defense it could have asserted against the Promisee against the TPB

39
Q

Assignment of Rights

A
  • Assignment is a transfer of rights under a contract; two steps: (1) contract between 2 parties; and (2) 1 party transfers rights to a third party
  • Vocab:
    • Assignor - party to contract who assigns
    • Assignee- 3rd party to whom assignment is made
    • Obligor - other part to contract
  • Assignee can recover from obligor, Assignor cannot recover from obligor
40
Q

Limitations on Assignment of Contract Rights

A

Either:

  • Prohibition of Assignment (assignee who does not know of prohibition may still enforce) *Assume prohibition
  • Invalidation of Assignments (all assignments are invalid)
41
Q

Requirements for Assignment of Contract

A

Generally consideration is NOT required, but gratuitous assignments can be revoked

If multiple assignments:

  • Last gratuitous assignment wins, but first assignment for consideration wins
42
Q

Delegation of Duties

A

Delegating party transfers duty to another party

Generally all duties are delegable, unless specifically prohibited or personal services contract requiring very special skills

Delegating party always liable; delegatee liable if she receives consideration

43
Q

When is specific performance available?

A
  • Contracts for sale of real estate
  • Contracts for sale of unique goods
  • NOT for service contracts
44
Q

Seller’s Reclamation from an Insolvent Buyer

A

Right of an unpaid seller to get its goods back, if:

  1. buyer was insolvent at the time it received the goods;
  2. seller demands return of goods within 10 days of receipt; and
  3. buyer still has goods in his possession.

*The critical date is the delivery date.

45
Q

Money Damages

(boilerplate)

A

The purpose of monetary damages in a contract case is to compensate the non-breaching party by protecting his expectation interest. This is done by placing the non-breaching party in the same monetary position it would have been in if there had been no breach.

46
Q

Money Damages Formula

A

Damages = Expectation Damages + Incidental Damages + (foreseeable) Consequental Damages - Avoidable Damages - Unreasonably Uncertain Damages

* Also consider the lost volume seller and liquidated damage clauses.

47
Q

Excuse of Nonperformance

(because of something happening after contract was made)

A
  1. Other side’s nonperformance
  2. Other side’s aniticipatory repudiation (unequivocal)
  3. Insecurity about whether other side will perform
  4. Breach (UCC, perfect tender AND CL material)
  5. Nonoccurance of an express condition
  6. Rescission
  7. Accord and Satisfaction
  8. Modification
  9. Novation
  10. Impossibility or Impracticality
48
Q

Excuse by Insecurity

A

Requirements

  1. Reasonable ground for insecurity
  2. Written demand for adequate assurance
  3. Commercially reasonable to stop performance
49
Q

Excuse by Nonoccurance of an Express Condition

A

Express condition must be strictly satisfied (exception to material breach rule), unless it is based on personal satisfaction (then it must be honest and in good faith)

* An express condition can be waived

* Performance not excused if person protected by condition prevents the occurence of the condition

50
Q

Accord and Satisfaction

A

Substituted performance

Parties agree to accept a different performance in satisfaction of the existing agreement

Nonbreaching party can recover on the accord or original agreement

51
Q

Novation

A

Susbstituted Party

Parties agree to replace one of the parties with a third party (the replaced party is no longer liable)

*Compare w/ delegation which does not require all parties to agree and does not excuse liability