Contracts Flashcards
Applicable Law
UCC for sales of goods; Common Law for everything else
Mixed deals - more important part controls, unless contract expressly divides payment
Definition of Contract
An (1) Agreement that is (2) Legally enforceable
Agreement Analysis
- Offer?
- Termination of Offer?
- Acceptance of Offer?
Offer
An offer is:
- an expression of a promise, undertaking, or commitment to enter into a contract
- with certain and definite terms
- 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).
Terms in an Offer
- 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
Termination of Offer
- Lapse of Time (time stated or reasonable time)
-
Death of either party
- Except Irrevocable Offers
-
Revocation (by words or conduct of offeror known to offeree)
- Except Irrevocable Offers
-
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)
UCC Firm Offer Rule
An offer cannot be revoked for up to 3 months if:
- It is in writing
- signed promise to keep open
- party is a merchant
Conditional Acceptance
- Common Law: Rejection and counteroffer that can be accepted by conduct
- UCC - Rejection only (not counteroffer that can be accepted by conduct)
Mirror Image Rule
(Common law) Acceptance must mirror offer to be a valid acceptance, otherwise it is rejection and counteroffer
Additional terms in acceptance of a sale of goods contract
- There is an acceptance
- Are the new terms part of the contract?
- Yes, if both parties are merchants and the term is not material or objected to
Acceptance
- 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
Reasons an agreement may not be legally enforceable
- Lack of Consideration
- Lack of Capacity
- Statute of Frauds
- Existing Laws Prohibit Performance
- Public Policy
- Misrepresentations
- Nondisclosure
- Duress
- Uncoinsionability
- Ambiguity
- Mistake as to Material Fact
Consideration
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
Lack of Capacity
- 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
Statute of Frauds
(Contracts w/in SoF)
Contracts within SoF require proof (writing or enforcement to be enforceable); contracts within SoF:
- Suretyship: Promises to Answer for Debt of Another
- Not Capable of Performance within a Year
- from date of contract
- SoF does not apply to tasks of unspecified length or contracts for life
- Transfers of Real Estate
- Except leases for 1 year or less
- Sale of Goods for more than $500
Statute of Frauds
(How to Satisfy with Performance)
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”
*
Statute of Frauds
(How to Satisfy with Writing)
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
Modifications and Statute of Frauds
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
Misrepresentation and Nondisclosure
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
Duress/Undue Influence
- 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.
Unconscionability
No unconsionable contracts, i.e., contracts with
- unreasonable surprise (procedural) and
- oppressive terms (substantive)
Ambiguity
No contract if
- both parties use a material term with two reasonable interpretations
- each party attaches a different meaning
- netierh party knows of the other possible interpretations
Mistake as to Material Fact
-
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)
Terms of Contract and Parol Evidence
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
Terms of Contract (Conduct)
- Course of performance: same people, same contract
- Course of dealing: same people, different contract
- Custom and Usage: similar people, similar contract
Consider in order. Used to fill gaps in contract.
Terms of Contract (UCC: Delivery Obligations on Seller)
- Delivery Obligations of Seller (if by Common Carrier)
- Shipment Contract - Seller completes delivery when:
- delivery to common carrier
- reasonable arrangment for delivery
- notifies buyer
- Destination Contract - Seller completes delivery
- Consider FOB [origin or destinaction] city
- Shipment Contract - Seller completes delivery when:
Terms of Contract (UCC: Risk of Loss)
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)
- Agreement (if specified, this controls)
- Breach (breaching party bears risk of loss)
- Common Carrier Delivery (risk shifts to buyer when seller completes delivery obligations)
- 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
Terms of Contract (UCC: Warranties of Quality)
- 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”
Nonperformance of Common Law Contract
The Material Breach Rule:
- Damages can be recovered for any breach
- Only a material breach excuses nonperformance
- Materiality of breach is a fact question
- If there is substantial performance, the breach is not material
*Material breach could be quality or quantity related
Performance of Article 2 Contracts
(6 Concepts)
- Perfect Tender
- Rejection of the Goods
- Cure
- Installment Contracts
- Acceptance
- Revocation of Acceptance
Perfect Tender (3 things to know)
- Only applies to the sale of goods (UCC)
- It means only that the goods and the delivery must conform to the contract terms
- 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.
Rejection of the Goods
(4 things to know)
- Disinguish rejection of an offer, from rejection of goods
- Buyer has option, in good faith, to reject if seller fails to meet perfect tender standard
- Buyer must take reasonable care of rejected goods and cannot continue to use them
- Right to reject is limited by cure, installment contracts, and acceptance
Right to Cure
In some instances, a seller who fails to make perfect tender will be given the option to cure:
- Seller reasonably believed the nonperfect tender would be acceptable (here, seller can cure even after delivery date)
- Time for performance not yet expired
Right to Reject an Installment
Only when there is a substantial impairment in the installment that cannot be cured
Acceptance of Goods
(3 things)
- If the buyer accepts the goods, he can not later reject them
- Payment without the opportunity to inspect is not acceptance
- Failure to timely reject is acceptance (retention of the goods is implied acceptance)
Revocation of Acceptance of Goods
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:
- Nonconformity substantially impairs the value of the goods
- Exusable ignorance of the grounds for revocation and reasonable reliance on seller’s assurance of satisfaction
- revocation within a reasoanble time after discovery of the nonconformity
Third-Party Contract Issues (3)
- Third-party beneficiaries
- Assignment of Contract Rights
- Delegations of Contract Duties
Third-Party Beneficiary
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
Assignment of Rights
- 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
Limitations on Assignment of Contract Rights
Either:
- Prohibition of Assignment (assignee who does not know of prohibition may still enforce) *Assume prohibition
- Invalidation of Assignments (all assignments are invalid)
Requirements for Assignment of Contract
Generally consideration is NOT required, but gratuitous assignments can be revoked
If multiple assignments:
- Last gratuitous assignment wins, but first assignment for consideration wins
Delegation of Duties
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
When is specific performance available?
- Contracts for sale of real estate
- Contracts for sale of unique goods
- NOT for service contracts
Seller’s Reclamation from an Insolvent Buyer
Right of an unpaid seller to get its goods back, if:
- buyer was insolvent at the time it received the goods;
- seller demands return of goods within 10 days of receipt; and
- buyer still has goods in his possession.
*The critical date is the delivery date.
Money Damages
(boilerplate)
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.
Money Damages Formula
Damages = Expectation Damages + Incidental Damages + (foreseeable) Consequental Damages - Avoidable Damages - Unreasonably Uncertain Damages
* Also consider the lost volume seller and liquidated damage clauses.
Excuse of Nonperformance
(because of something happening after contract was made)
- Other side’s nonperformance
- Other side’s aniticipatory repudiation (unequivocal)
- Insecurity about whether other side will perform
- Breach (UCC, perfect tender AND CL material)
- Nonoccurance of an express condition
- Rescission
- Accord and Satisfaction
- Modification
- Novation
- Impossibility or Impracticality
Excuse by Insecurity
Requirements
- Reasonable ground for insecurity
- Written demand for adequate assurance
- Commercially reasonable to stop performance
Excuse by Nonoccurance of an Express Condition
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
Accord and Satisfaction
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
Novation
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
