Contracts Flashcards
The sale of goods is governed by what contract law?
The UCC
All other contracts besides the sale of goods are governed by what law?
Common law
Define “goods”
Movable, tangible property
Define “merchant”
One who
- Specializes in sale of goods of the kind
- Holds self out as having special knowledge or skill regarding the practices or goods in the contract
What law applies when a contract provides for both the sale of goods and also services?
The courts apply the “predominant purpose” test
What is an offer?
- Intent to enter into K
- Definite terms
- Communication to the offeree
What are the essential terms of a contract?
Quantity Time of performance Identity of the parties Price Subject matter
What is an acceptance?
Manifestation of assent to the terms of the offer
What is bilateral acceptance of a contact?
Where both parties promise to perform
What is unilateral acceptance?
Exchanges the offeror’s promise for the offree’s actual performance
When may offers be accepted?
Within a reasonable amount of time, or before revocation
Who may accept an offer?
Only the offeree
Must an offeree know of an offer before accepting it?
Yes
What is the manner of acceptance of an offer?
By the means specified in the offer, or reasonable means if none specified
What causes a termination of the power to accept an offer?
- Rejection
- Counteroffer
- Revocation
- Time lapse
- Death or incapacity of either party
What is a firm offer?
Under the UCC,
- Made by a merchant
- Signed and in writing
- Gives assurances that it will he held open for specified time
- Three month time limit on irrevocability
What is an option contract?
A contract where the offeror grants the offeree an option to enter into a contract for a specified amount of time and promises that the offer will be held open during that time
What makes an offer temporarily irrevocable in a unilateral contract?
The beginning of performance
What makes an offer temporarily irrevocable in a bilateral contract?
Making preparations to perform in detrimental reliance
What is the mailbox rule?
Once an acceptance has been dispatched, it is effective whether or not received.
Proper dispatch requires that the offeree no longer has control or possession of the acceptance.
What are the exceptions to the mailbox rule?
- Offer provides otherwise
- Option contract is effective on receipt
- If both acceptance and rejection sent, depends on which was dispatched first. If rejection dispatched first, acceptance only effective if it is received first. If acceptance is dispatched first, it is effective in accordance with the normal rule.
What is the common law “mirror image” rule?
An acceptance must be a mirror image of the offer. If terms vary, the response will be deemed a rejection and a counteroffer.
Do terms need to be identical under UCC for there to be a valid contract formed?
No, under UCC, any “expression of acceptance” will act as an acceptance even where there are differing terms.
What is the “battle of the forms” rule under UCC?
Where there are additional terms in the acceptance, the outcome depends on whether one or both parties are merchants.
If one party or more not a merchant, additional terms are proposals.
If both parties are merchants, additional term automatically added unless
- Offer expressly limits its acceptance to its terms
- There is a material alteration with the added term
- The offeror rejects within a reasonable time
Under common law, what happens if there are conflicting terms between the offer and the acceptance?
The contract is not executed!
Under the UCC what happens if there are conflicting terms between the offer and the acceptance?
The contract consists of the agreed upon terms, UCC gap fillers apply
What is the UCC gap filler for price?
Reasonable price
What is the UCC gap filler for place of delivery?
Buyer must pick up goods
What is the UCC gap filler for time for shipment?
A reasonable amount of time
What is the UCC gap filler for time for payment?
Payment is due upon receipt of goods.
Does shipping goods constitute an acceptance of an offer?
Shipping confirming goods is an acceptance.
Shipping nonconforming goods depends on whether the seller acknowledges the nonconformity of the shipment.
Shipment without acknowledging nonconformity means the offer has been accepted and breached simultaneously.
Shipment with acknowledging nonconformity means there is no acceptance, only a counteroffer.
What is a requirement contract?
An agreement that seller will be the exclusive source for all of buyer’s needs
What is an output contract?
An agreement that buyer will buy all of seller’s output for a particular item for a specified time.
What is promissory estoppel?
A promise that foreseeably (to the promisor) induces reliance, is actually relied upon, may be enforceable to prevent injustice even without consideration.
What types of contracts fall within the statute of frauds?
Marriage Real property Pay the debt of another Contract incapable of being performed within one year Sale of goods of $500 or more
When may misrepresentation be a defense to a contract?
Where the misrepresentation goes to a material fact and there is justifiable and actual reliance.
The misrepresentation need not be intentional.
When may mutual mistake be a defense to a contract?
Mistake goes to a basic assumption
Has a material effect on the deal
The risk of the mistake is not imposed on the party trying to avoid the contact
When is a unilateral mistake a defense to a contract?
Where the three factors for mutual mistake are shown and
The other party knew or should have known of the mistake or the enforcement of the contract would be unconscionable
What is a constructive condition?
One supplied by the court for fairness.
What degree of compliance do express conditions require?
Strict
What degree of compliance do constructive conditions require?
Substantial performance
How may a party waive the satisfaction of a condition?
The party the condition is designed to benefit can waive the benefit of that condition by
- Receiving and keeping a benefit
- Failing to insist on compliance
Note: a waiver can be retracted unless there is detrimental reliance
What is the parol evidence rule?
A rule which limited the extent to which evidence of discussions of writings made prior to, or contemporaneous with the signed contract may be admitted and considered part of the agreement.
What is a partial integration under the parol evidence rule?
One which is intended to be the final expression of the agreement
How is parol evidence considered where there is a partial integration?
PER is permitted to supplement (not contradict) a term in the total integration l.
How may an offer be revoked?
Lapse in time
Death or incapacity of either party revocation and communication by offeror
Rejection by offeree
If a gc uses subcontractors to calculate bids, what doctrine prevents subcontractors from revoking their bids?
Implied contract via promissory estoppel
What is the effect of a counteroffer by offeree?
It rejects the initial offer.
Note: offeree may test waters by making a “mere inquiry” about offeror’s willingness to negotiate without creating a counteroffer and terminating the power of acceptance.
What are the elements of consideration?
Bargained for exchange or legal detriment
In non-carrier cases, who has the obligation to tender delivery?
The seller
In non-carrier cases where the seller is a merchant, the seller bears the risk until what point?
The buyer takes possession
In non-carrier cases where the seller is not a merchant, the seller brads the risk until what point?
The seller makes the goods available
Does the per bar the admission of evidence of subsequent communications?
No
Does the PER bar evidence of contract formation defects like fraud or duress?
No
Does the per bar admission of evidence of conditions precedent to a contract’s effectiveness?
No
How does the UCC deal with ambiguous terms?
- Course of performance
- Course of dealing
- Usage of trade
Note: the per does not bar evidence regarding the interpretation of ambiguous contract terms
How does the sof deal with oral contract modifications?
If the contract as modified would fall within the statute of frauds, then the modification itself must be in writing.
How may a contract be modified under common law?
Mutual assent
Consideration
How may a contract be modified under the UCC?
Mutual assent
Good faith
No consideration required
Can an intended third-party beneficiary due to enforce a contract?
Yes
What are the types of third party beneficiaries?
Creditor beneficiary
Done beneficiary
What is an incidental beneficiary?
One who indirectly benefits from the contact, but not as the intent of the promisor.
Incidental beneficiaries cannot sue.
What is an assignment?
A transfer of rights or duties owed under a contract to a third person.
Is consideration required for an assignment?
No, gratuitous assignments are permitted.
Who remains liable after a delegation of duties owed under the contract?
The delegator
What may not be delegated?
Duties of skill or judgment
What is an ovation?
When the obligee expressly agreed to accept the performance of the delegatee instead of the delegator.
When is a contract breach material under common law?
Where there is not substantial performance of the contract.
What factors whether a breach is material under common law?
- Whether party received substantial bargain of benefit
- Extent of any part performance
- Willfulness of breach
- Time is not of the essence in a contract unless specifically agreed upon. Delays not normally a material breach.
What is the “perfect tender” rule?
In contracts for a single delivery of goods where goods fail to conform to the contract, the buyer can:
Reject the whole
Accept the whole
Accept any commercial unit and reject the rest
What is the seller’s right to cure defective goods?
A seller may cure defects before performance is due by:
- Notice to buyer
- New tender
What happens when there is a minor breach of contract?
Performance not excused, damages may ensue
What is anticipatory repudiation?
An unequivocal expression by a party, occurring before the time for performance that she will not perform under the contract
How may a nonrepudiating party respond to an anticipatory repudiation?
- Sue now
- Sue later
- Urge performance
What is the right to receive adequate assurances?
Where the conduct of a party is not unequivocal enough to rise to the level of anticipatory repudiation, but causes reasonable grounds for assurances, the insecure party can demand adequate assurances of due performance.
Must be done in writing.
Insecure party may suspend performance until receiving adequate assurances.
What is the implied warranty of merchantability?
Goods will be fit for their ordinary purpose
What implied covenant is present in every contact?
Good faith and fair dealing
What are the 8 defenses to contract?
No mutual assent Lack of consideration Lack of writing where writing required Misrepresentation/fraud/duress Unconscionability Lack of capacity Illegality Condition precedent not met
When does impossibility occur?
When a supervening, unforseeable event makes performance impossible and thus discharges performance
What are the most common ways impossibility occurs?
Destruction
Death
Illegality
When does impractabity occur?
An event the parties assumed wouldn’t occur makes performance unreasonably difficult.
Must concern basic assumption of K
Parties must not have allocated the risk to the party seeking to use this defense.
What limits damages on contract breaches?
Foreseeability
Duty to mitigate losses
Not too speculative
What are expectation damages?
Put the party in the position he would be if the contract was performed
What are buyers damages under UCC where seller still has goods?
Where buyer covered, the difference between the contract price and the cover price.
Where buyer didn’t cover, the difference between the contract price and the market price at the time he learned of breach
Can also seek consequential and incidental damages
What are seller’s UCC damages where seller has goods and buyer in breach?
If seller resold, contract price minus resale price
If seller didn’t resell, contact price minus market price
What is a lost volume seller?
Has big enough supply to make contracted sale and resale, would have likely made and profited off of both
What are buyer’s UCC damages where he kept defective goods?
Difference between perfect goods and value of goods as tendered
What are consequential damages?
Damages that compensate for losses that are a foreseeable consequence of nonperformance
What are reliance damages?
Put the plaintiff in the position he would have been in had no contract been made.
Often used when expectation damages too speculative.
What are liquidated damages?
Amount of damages specified in contract.
Used where damages difficult to calculate, amount agreed to is reasonable approximation of anticipated loss.
What are nominal damages?
Used where plaintiff’s rights violated, but no financial loss
Are punative damages awarded for breach of contract?
No
What is replevin?
A remedy to get plaintiff’s stuff back
What is ejectment?
A remedy to get plaintiff real property back
What is reformation?
An equitable remedy that rewrites a contract to represent the will of the parties
What is recission?
A party undoing a bargain
When is recission or reformation allowed?
Where contract resulted from fraud, duress, misrepresentation or mistake
When may specific performance be imposed?
- Valid contract
- Plaintiff satisfied conditions
- Inadequate legal remedy ( defendant insolvent, damages too speculative, multiplicity of lawsuits)
What property is unique?
Real property
Special personal property
Under common law what does a contact modification require to be valid?
New consideration
When can an intoxicated person assert lack of capacity as a defense to contract?
When the other party had reason to know of the intoxication
Must the promise to pay the debts of another be in writing?
Yes, so long as it is a guarantee
Do leaseholds for less than one year fall within the statute of frauds?
No
What is the confirmatory memo rule?
Where both parties are merchants, a confirmatory memo satisfies the sof writing requirement unless the other party objects within 10 days
What is a quasi contract?
A theory of recovery under which a plaintiff can recover damages where the result at contract law would be unjust, and defendant has conferred some benefit of the contract
Where seller delivered goods constituting part performance, is sof a defense?
Yes, but only for the goods delivered
Where there is part performance of specialty goods, is there an sof defense?
No, where the seller has started producing or procuring the specialty goods
Does part payment for a single item satisfy the sof?
Yes!
What satisfies a sale of land contract under the sof?
Two of three:
Buyer takes possession
Buyer makes part payment
Buyer makes substantial improvement to the land
How is sof satisfies by judicial admission?
Where a party states under oath there was a contract, sof is no longer a defense
Under common law, what is the effect of a provision that prohibits oral modifications?
The provision has no effect
Under the UCC, what is the effect of a provision that prohibits oral modifications?
It is valid unless there is a waiver
What is the effect of fraud in the indictment on a contract?
It renders the contract voidable
When does the statute of limitations begin for a party seeking to void a contract based on fraud or misrepresentation?
When the party learns of the fraud or misrepresentation
What is the effect of a non fraudulent misrepresentation on a contract?
The contract becomes voidable so long as the misrepresentation was material and relied upon
What is fraud in the factum?
The contract is void where the party who signed an agreement not knowing it’s supposed to be a contract and there was some false information given by the other party
A mutual mistake in material fact is a defense to a contract if
- Mistaken basic assumption of material fact
- Material adverse effect on agreement
- No assumption of risk by the party seeking to avoid the agreement
What is the seller presumption?
A seller presumed to know about the thing she is selling
When is a mistake due to ambiguity a defense to a contract?
- A material term is subject to at least two reasonable interpretations
- Each party had a different meaning in mind
- Neither party aware of the amiguity
When there is a mistake due to an ambiguity of which one party was aware, what is the effect on the contract?
The contract is formed based on the understanding of the party who was not aware of the ambiguity
What are some common unconscionable contracts?
Adhesion Too one sided Disparate bargaining power Against public policy Inconspicuous risk shifting
Where plaintiff is unaware of the illegality of a contract but defendant was aware, what is the effect on contract?
Plaintiff may recover damages on the contract
What is the result of a contract that has legal subject matter but an illegal purpose?
Voidable by party unaware of illegal purpose or who was aware of illegal purpose but did not facilitate the illegal purpose and purpose does not constitute serious moral turpitude
Do brokerage deals of over $500 fall under the UCC?
No, not if they are not for the actual sale of goods
What is the difference between reliance damages and expectation damages?
Reliance damages put the plaintiff in the position she would have been in if there was no contract, expectation damages put the plaintiff in the position she would have been in had the contract been fully performed
What are consequential damaged?
Damages that are causal, foreseeable, certain and unavoidable but do not stem directly from the breach.
What are the default damages in contract law?
Expectation damages
What is different about damages when there is a lost volume seller?
Where the seller has enough supply to meet the needs of all its buyers, cover or replacement does not reduce its damages.
May a party collect both reliance and expectation damages?
No
