Contracts Flashcards
Offer
Objective manifestation of a willingness to enter into an agreement that creates the power of acceptance in the offeree
Advertisements
Generally only an invitation to receive offers (but may qualify as an offer if sufficiently specific and limit who can accept or if associated with a stated reward)
Termination of offers
- Lapse of time (specific date or reasonable period of time if none stated)
- Death/mental incapacity of the offeror
- Destruction/illegality
- Revocation (even if it states it will be open for a specific amount of time)
- Revocation of general offers – only by notice given at least the same level of publicity as offer
- Rejection by offeree (including counteroffers)
Limitations on revocation
- Option K – offeree must generally given consideration for option to be enforceable
- Firm offer – offeror is merchant and assurances are made in an authenticated writing that offer will remain open
- Promissory estoppel – if offeree reasonably and detrimentally relies on offer
- Partial performance – for all Ks, offeree must have knowledge of offer when performance begins
a. Unilateral K – offeror cannot revoke once offeree has begun performance
b. Bilateral K – commencement of performance operates as promise to render complete performance
Acceptance
Objective manifestation by the offeree to be bound by the terms of the offer
- Shipment of goods – request invites acceptance by either seller’s promise to ship or by prompt shipment of goods
- Nonconforming goods shipped – both acceptance and a breach, unless seller notifies buyer that goods are an accommodation, which buyer may then accept or reject
Mailbox rule
Acceptance is effective when sent, unless offer provides otherwise
- Acceptance will control even if offeror receives rejection first (but if offeror detrimentally relies on rejection then offeree estopped from enforcing K)
- Rule does not apply if acceptance follows rejection
- Rule does not apply to an irrevocable offer
Notice of acceptance
Unilateral K – not required to give notice after completing performance unless offeror wouldn’t learn of performance or offeror requires it
Bilateral K – offeree must give notice of acceptance
Mirror-image rule (CL)
Acceptance must mirror the terms of the offer, so any change or addition to the terms acts as a rejection and a new counteroffer
UCC treatment of additional or different terms
One or both parties are not merchants – definite and seasonable expression of acceptance OK even if it contains new/different terms unless acceptance is conditioned upon assent to said terms
Both parties are merchants
- Battle of the forms – additional terms are automatically included in the K unless
- Term materially alters original K;
- Offer expressly limits acceptance to terms of offer; or
- Offeror objects to new terms within reasonable time after notice of new terms is received - Knock-out rule – different terms in offer/acceptance nullify each other and court uses Article 2 gap-filling provisions to fill holes in K
Consideration
Must be bargained-for legal detriment to the promisee
Pre-existing duty rule (CL)
Does not qualify as consideration unless promisor gives something in addition to what is owed or varies preexisting duty in some way
Modification
CL – must be supported by consideration
UCC – no consideration is necessary; only requires good faith
Accord and satisfaction
Generally, consideration is required for accord to be valid
Satisfaction – performance of accord agreement; discharges both original K and accord K
Illusory promise
Not legally binding because it is vague or promisor can choose whether or not to honor it
Promises binding without consideration
- Pay a debt barred by SOL
- Material benefit rule – when a party performs an unrequested service for another party, performing party can enforce promise of payment for material benefits received to the extent necessary to prevent injustice
- Promissory estoppel – promise is binding if
- Promisor should reasonably expect it to induce action on the part of the promisee,
- Promise does induce such action, and
- Injustice only avoided by enforcement of promise
Mistake
Mutual – both parties mistaken as to an essential element; K generally voidable by adversely affected party if:
- Mistake existed when K was formed,
- Mistake relates to basic assumption of K,
- Mistake has material impact on transaction, and
- Adversely affected party did not assume the risk
Unilateral – elements of mutual mistake +
- Mistake would made K unconscionable, or
- Non-mistaken party caused the mistaken, failed to disclose the mistake, or knew or should have known the other party was mistaken
Misunderstanding
Each party attaches different meanings to same terms; must show that
- Parties use material term that is open to two or more reasonable interpretations;
- Each side attaches different meaning to term; and
- Neither party knows, or should know, of the confusion
Misrepresentation
Statement at the time of the K that is not true
Fraudulent misrepresentation – requires proof that
- Misrepresentation is fraudulent,
- Misrepresentation induced assent to K, and
- Justifiable reliance on misrepresentation by adversely affected party
Non-fraudulent misrepresentation – same elements except that, instead of fraudulent, misrepresentation is material
If misrepresentation is cured, K will no longer be voidable
Duress
Improper threat that deprives a party from making a meaningful choice
- Economic duress: when a party makes threats to induce another party to K (or modify a K)
- Undue influence: when a party puts very intense sales pressure on another party who seems weak minded or susceptible to high-pressure tactics
Capacity to K
- Infancy – voidable by infant but not by adult
- Mental illness – K is void for one who is adjudicated mentally incompetent but only voidable if there has been no adjudication
- Intoxication – K is voidable by intoxicated party if she was unable to understand nature/consequences of K and other party knew of intoxication
Illegality
K is unenforceable if consideration/performance under K is illegal
Unconscionable
K is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would agree to it
Two types
- Procedural – defect in the bargaining process (e.g., unequal bargaining power)
- Substantive – term that is just a rip off
Public policy
K may be unenforceable if it violates significant public policy
Implied-in-fact K
Conduct, not words, indicates assent or agreement
Quasi K
Plaintiff confers benefit on defendant and plaintiff has reasonable expectation of compensation and court implies K to prevent unjust enrichment
Express warranty
Any promise, affirmation, description, or sample that is part of the basis of the bargain, unless it is merely the seller’s opinion
Implied warranty of merchantability
- Implied whenever a seller is a merchant; goods must be fit for their ordinary purpose
- Can be disclaimed if use conspicuous language
Implied warranty of fitness for particular purpose
- Implied whenever seller has reason to know buyer has particular use for goods and buyer is relying on seller’s skill to select the goods
- Can be disclaimed if use conspicuous language
Impracticability
- Unforeseeable event has occurred,
- Nonoccurrence of event was basic assumption on which K was made, and
- Party seeking discharge is not fault
Defense available if
- Performance becomes illegal after K is made,
- Specific subject matter of K is destroyed, or
- Performance becomes impracticable
Frustration of purpose
Unexpected events arise that destroy one party’s purpose in entering into K, even if performance of K not rendered impossible
Intended beneficiary
One to whom the promisee wishes to satisfy an obligation or otherwise benefit by the promised performance
Incidental beneficiary
One who benefits from a K even though there is no contractual intent to benefit that person
Vesting of beneficiary’s rights
Rights of intended beneficiary vest when beneficiary
- Detrimentally relies on rights created,
- Manifests assent to K at one of the party’s request, or
- Files lawsuit to enforce K
Assignment of rights
Not allowed when it materially increases duty or risk of obligor or materially reduces obligor’s chance of obtaining performance
- Assignee takes all of the rights of assignor but takes subject to any defenses that could be raised against assignor
Delegation of duties
Generally allowed, except when other party to K has substantial interest in specific individual’s performance
- Delegator is not released from L, so he is still L if delegatee doesn’t perform
Statute of Frauds
Writing required – memorandum must
- Be in writing
- Be signed by the party to be charged
- Contain the essential elements of the deal
Types of Ks within the SoF
- Marriage (in consideration of)
- Suretyship
- One year
- UCC (indicate K has been made, identify parties, contain quantity term, and be signed by party to be charged)
- Real property
Parol evidence
Prevents introduction of prior extrinsic evidence that contradicts terms of written K
Integration – total (complete expression) vs. partial (partial expression)
- CL – assumes K is total integration
- Second Restatement – if term would naturally be omitted, then term can be introduced as long as not contradictory
- UCC – assumes K is partial integration and allows almost any outside terms
Inapplicable when
- Raising defense to formation
- Raising defense to enforcement
- Proving condition precedent to existence of K
- Interpreting/clarifying any ambiguity in K
- UCC – supplementing even apparently unambiguous terms by evidence of trade usage or course of dealing
Condition
Future event that must take place before rights or obligations are created, destroyed, or enlarged
- Failure of obligation relieves party of obligation to perform
Substantial performance (CL) – implied or constructive condition of exchange
A party who substantially complies with the condition can trigger the other party’s obligation to perform
Performance (UCC)
Perfect tender rule – substantial performance insufficient (perfect goods + perfect delivery)
Risk of loss issue
- If dealt for with in K, then K will control;
- If party has breached, then breaching party bears the loss;
- If shipment K, then buyer bears the loss; or if destination K, then seller bears the loss;
- If seller is merchant, then risk stays with seller until buyer receives goods; if not, risk moves to buyer when seller tenders goods
Shipment K
Seller must delivery goods to carrier, arrange for their shipment, and notify the buyer (e.g., “F.O.B.’s seller’s place of business”)
Destination K
Seller must deliver goods to the place specified in K and tender them there by holding them at the buyer’s disposition (e.g., “F.O.B. buyer’s place of business”)
Installment Ks
Goods delivered in multiple shipments, each to be separately accepted
- Buyer can only reject if nonconformity substantially impairs value to buyer and cannot be cured
Anticipatory repudiation
When other party clearly and unequivocally says that he is not going to perform on K before performance is due
Two options
- Treat repudiation as a breach and immediately sue for damages
- BUT, if performance is complete and you are only waiting for payment, then you cannot sue early - Ignore repudiation, demand performance, and see what happens
- Under UCC, reasonable grounds for insecurity about other side’s performance allows you to demand adequate assurance of performance; if questionable party fails to respond within 30 days, then you can treat this as repudiation
- Party can retract its repudiation as long as other side has not commenced a lawsuit for breach or acted in reliance on the repudiation (by materially changing its position)
Compensatory damages
Meant to compensate nonbreaching party for actual economic losses and put nonbreaching party in as good a position as performance would have done, plus consequential and incidental damages, less possible mitigation of damages
Doctrine of mitigation
Breached-against party must take reasonable steps to reduce damages from breach
Reliance damages
Non-breaching party incurs out-of-pocket expenses in reasonable reliance upon promise that other party would perform
- Goal is to the put party in same economic position that it would be in if K had never been created
Restitution damages
Seeks to restore to party benefit conferred on other party
- Goal is to give plaintiff amount equal to economic benefit that plaintiff conferred on defendant when defendant is unjustly enriched by plaintiff
Liquidated damages
Damages stipulated to by the parties to the K as a reasonable estimation of actual damages to be recovered in the event of a breach
- Enforceable if the stipulated amount was reasonable at time of K and
- Actual damages would be uncertain in amount and difficult to prove
Specific performance
- Valid K
- Inadequate legal remedies
- Enforcement is feasible/fair
- Mutuality of performance
- Lack of defenses
Presumptively available for real estate transactions but not personal service Ks
Nonconforming tender – right to cure
Seller has right to cure defective tender if time of performance under K has not yet elapsed or seller had reasonable groups to believe that buyer would accept despite nonconformity
Right to reclaim goods
Seller has the right to reclaim goods from insolvent buyer if he makes a demand within 10 days after buyer receives goods
