Contracts Flashcards
Applicable Law
A contract is an agreement that is legally enforceable. Generally, common law govern contracts, however, the Uniform Commercial Code (UCC) governs all contracts for the sale of goods. Goods are movable tangible items. Here,
Predominate Factor Test
If a contract is for both goods and services, the court will apply the predominate factor test and apply the law that relates to the primary purpose or focus of the contract. Here,
Merchant
The UCC has special rules governing transactions between merchants. A merchant is one who regularly deals with goods of the kind or who holds themselves out as having special knowledge or skills regarding the goods involved. Here,
Formation
Contract formation requires a valid offer, acceptance, and consideration.
Offer
An offer is words or conduct showing an intent to contract, communicated to an identifiable offeree, with definite and certain terms. Here,
Offer: Advertisement/Price Quote
Advertisements are generally not offers, rather an invitation to deal. But, if reward is offered or ad specifies quantity and expressly indicates who can accept, then it is an offer. Price quotes are not offers unless in response to a specific inquiry. Here,
Offer: Real Estate
An offer involving real estate MUST identify the land and the price. Here,
Offer: Sale of Goods - UCC
An offer to buy or sell goods must include the quantity. All other terms can be filled in using reasonable gap fillers. Here,
Offer: Requirement/Output Contracts
Requirements contracts are typically valid and may state quantity of goods in terms of the buyer’s requirements, the seller’s output, or in terms of exclusivity. However, no unreasonably disproportionate increase in quantity is allowed. Here,
Termination of Offer
An offer may be terminated by operation of law or by an act of either party. An offer cannot be accepted after is has been terminated. Here,
Termination: Lapse
An offer is terminated if no response within 1) time stated or 2) reasonable time (a few months). Here,
Termination: By Law
An offer can be terminated by the death of a party, the destruction of the subject matter, or a supervening illegality. Here,
Termination: Revocation
A revocation is unambiguous words or conduct indicating unwillingness or inability to contract by offeror AND offeree is aware off revocation. Here,
A revocation is effective upon receipt except when it’s irrevocable because its an option contract, merchant’s firm offer, or detrimental reliance. Here,
Termination: Option Contract
An option contract is a promise not to revoke supported by consideration. Here,
Termination: Merchant’s Firm Offer
Under the UCC, an offer cannot be revoked for up to three months is 1) offer is to buy or sell goods, 2) signed writing promising to keep open, and 3) party is a merchant, even if no consideration is given. Here,
If the offeree rejects the offer before the period is up, he may still later accept the offer, so long as the offeror has not detrimentally relied on the offeree’s rejection. Here,
Termination: Detrimental Reliance
An offer cannot be revoked if there has been reasonably foreseeable detrimental reliance on the offer resulting in a detriment if revoked. Here,
Termination: Rejection
A rejection is words or conduct of the offeree rejecting the offer. It is effective when received. Here,
Termination: Rejection of an Option
A counter offer or a rejection of an option K does NOT constitute a termination of the offer, because an option is a K to keep an offer open. Thus, the offeree is still free to accept the original offer within the option period, UNLESS the offeror has detrimentally relied on the offeree’s rejection. Here,
Termination: Conditional Acceptance
A conditional acceptance to an offer terminates the original offer and acts as a counter offer with the new condition attached. Here, (only if, so long as, etc.)
Acceptance
An acceptance is an unequivocal assent to the terms of the offer, either verbally or by performance, made by one with the power of acceptance. Here,
Acceptance: Additional Terms - Mirror Image/UCC
Under common law, a counteroffer that has different or additional terms will terminate the original offer and is a new offer (mirror image rule). Here,
Under UCC Battle of Forms, additional terms for the sale of goods becomes part of the contract is 1) both parties are merchants and 2) the additional terms do not materially alter the price, liabilities, or remedies of the parties, 3) and if the offeror does not object to the changes. (no language acceptance is conditioned on new terms). Here,
If one party is not a merchant, the additional terms are merely a proposal that is to be separately accepted or rejected. Here,
Acceptance: Mailbox Rule
Acceptance by mail creates a K at the moment of dispatch, UNLESS 1) the offer stipulates that acceptance is not effective until received, 2) an option K is involved, 3) the offeree sends a rejection and then sends an acceptance (whichever arrives first is effective), or 4) if the offeree sends an acceptance and then a rejection, the acceptance is effective UNLESS the rejection arrives first and the offeror detrimentally relies on it. Here,
Acceptance by Performance
Most courts hold that an offer to form a unilateral K is not accepted until performance is completed. The beginning of performance creates an option so that the offer is no longer revocable, however, the offeree is not obligated to complete performance just because he has begun performance. Here,
Acceptance: Nonconforming Goods
The shipment of nonconforming goods is an acceptance as well as a breach of the contract, unless the seller notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation. Here,
Consideration
Courts will enforce a promise as a K ONLY if it is supported by consideration. Consideration is a bargained for exchange of legal detriment or legal benefit. Additionally, courts do not consider the adequacy of consideration. Here,
Past Consideration
A promise given in exchange for something already done does NOT satisfy the bargain requirement. Here,
Consideration - Pre-Existing Duty
Traditionally, performing or promising to perform an existing legal duty is INSUFFICIENT consideration. Here,
Consideration - Promissory Estoppel
A promise is enforceable to prevent injustice if: 1) the promisor should have reasonably expected to induce action or forbearance and such action or forbearance is in fact induced. Promissory estoppel or detrimental reliance may substitute as consideration. Here,
Defenses to Formation
Even if an agreement is supported by consideration, a K may still be unenforceable be because there is a defense to the formation of the K.
Statute of Frauds MYLEGS
In most cases, an oral K is valid. However, certain agreements must be evidenced by a writing signed by the party sought to be charged. Marriage, over a year, land, executor, goods over $500, and surety. In certain situations, SoF requirement may satisfied through performance or in equity through estoppel in the absence of a signed writing. Here,
SoF - Equal Dignity Rule
If K is within the SoF, a person must have a written authorization to sign the K on behalf of someone else. Here,
SoF - Confirmatory Memo Rule - Merchants
In K’s between merchants, if one party sends to the other party a written confirmation of the understanding, it is sufficient under SoF to bind the sender. It will also bind the recipient if he has reason to know of the confirmation’s contents and he does not object to it in writing within 102 days. Here,
SoF - Service K Performance
Full performance of a services K by either party satisfies the SoF (enough to get through barrier to trial). Part performance does not satisfy SoF - look to quasi contract. Here,
SoF - Sale of Good Performance
Part performance on a sale of goods K satisfies the SoF only to the extent of the part performance. However, if the goods are custom made, SoF satisfied by a “substantial beginning” to manufacturing. Here,
SoF - Real Estate Performance
Part performance can satisfy SoF if the buyer has done two of the following three: 1) payment, 2) improvements, 3) possession. Here,
Def: Mistake
Generally, there is no relief for a mistake because parties assume the risk of mistake when contracting. However, if one party knew about the mistake (UNILATERAL) at the time of K it will be voidable. Or, if both parties entering the K make a MUTUAL mistake about existing facts relating to the agreement, the K may be voidable if 1) the mistake concerns a basic assumption upon which the K was made, 2) the mistake has a material effect on the K, and 3) the party seeking avoidance did not assume the risk of mistake. Here,
Def: Ambiguity
If a K includes a term with at least 2 possible meanings, no binding contract exists unless ONLY one of the parties is aware of the ambiguity, at which point, the K is based on what the ignorant party reasonably believed to be the meaning of the ambiguous words. Here,
Def: Illegality
Illegality of subject matter or consideration voids the contract. Here,
Def: Incapacity
Minors, mentally disabled, and intoxicated persons cannot from enforceable contracts. Party with capacity remains bound by the K. Here,
Def: Misrepresentation/Fraud
If a party induces another to enter into a K using UNINTENTIONAL misrepresentation, the K is voidable only if the misrepresentation was material. If a party induces another to enter into a contract using intentional misrepresentation, the K is voidable. Here,
Def: Misrepresentation/Fraud - Non-Disclosure
Generally, no duty to disclose unless a fiduciary relationship exists, but contract is not enforceable if “purposeful concealment” occurs. Here,
Def: Unconscionable
Unconscionability allows a judge to refuse to enforce a K or provision of a K to avoid “unfair” terms, usually due to some unfairness in the bargaining process, usually unfair surprise (procedural) or oppressive terms (substantive). Here,
Def: Duress
K’s induced by duress or undo physical or economic influence are voidable. Here,
Terms
Once a court determines that a valid K exists, they will determine the validity of its terms. Courts will construe terms according to their “plain meaning”. But if the plain meaning is in dispute, courts will look to 1) performance under the current contract, 2) performance under past contracts between the parties, or 3) custom and usage in the industry. Here,
Terms: Modification
Under common law, a modification of K requires new consideration. Here,
Under UCC, no new consideration is needed for a modification so long as it is made in good faith. Here,
In CA, all modifications are subject to SoF. Here,
Terms: Parol Evidence
Evidence of oral or written statements by either party made prior to or contemporaneous to the K, that contradict the K terms, will be inadmissible if the written K is intended as a “complete integration”. Here,
Admissible to show 1) defects in formation, 2) conditions precedent, 3) interpret ambiguous terms, 4) collateral agreements related to subject matter but not part of agreement, or 5) subsequent modifications made after K. Here,
UCC: Risk of Loss
If goods are damaged, but neither party is at fault, look to 1) terms of agreement, 2) then to a breaching party responsible, 3) and if terms are silent and no breach, then the seller has risk of loss IF merchant. Here,
In SHIPMENT K, seller must get goods to a common carrier, make reasonable arrangements for delivery, and notify buyer of shipment.
In DESTINATION K, seller does not complete deliver obligation until goods arrive to buyer.
In FOB (city) K, if city listed is the seller’s city, then it is a shipment K, otherwise it is a destination K.
UCC: Warranties of Quality
Express warranties promise a specified quality, e.g. “all steel” or “guaranteed for 2 years”. This is more than mere sales talk like “top quality”
Implied warranty of merchantability applies to ALL sale of goods by a merchant and warrants the goods as fit for “ordinary” purposes.
Implied warranty of fitness for a particular use requires 1) buyer has particular purpose, 2) buyer is relying on seller to select suitable good, and 3) seller knows of purpose and reliance.
Disclaimers eliminate merchantability warranties through conspicuous language, OR the words “as-is” or “with all faults” even if not conspicuous.
3rd Party Benny
Two parties to a K can name a third party in the K as a benny. The 3p is not a party to the K, but is able to enforce the K others made for his benefit. Here,
TPB Right to Enforce K
In order to enforce her rights under a K, the benny’s rights must first vest. Vesting of rights occurs when either 1) benny assents to the promise, 2) benny brings suit to enforce promise, or 3) benny materially changes position in justifiable reliance on the promise. If benny vests, the K cannot be cancelled or modified without benny consent unless the K states otherwise. Here,
TBD: Enforcing the K
The benny can sue the promisor directly, however, the promisor can assert any defenses he may have had against promisee. Here,
Assignments
An assignment is the transfer of K rights by one party to a third party in a secondary K. Assignments generally valid if obligor has notice. Invalid if 1) it materially alters the obligors duty or risk, 2) is for future rights based on future K, or 3) it is prohibited by a “no assignment provision” or by law. Gratuitous assignments are allowed, but only assignments for consideration cannot be revoked. Here,
Delegations
A delegation is a transfer of K duty by one party to a third party in a secondary K. Duties can be freely delegated except 2) where prohibited by K, 2) where duties involve special skill or personal judgment. Here,
Obligee may sue the delegator or the delegatee (if consideration received) for breach of K. Here,
Anticipatory Repudiation
An opposing party’s 1) unambiguous statement or conduct indicating the repudiating party will not perform 2) made prior to the time performance was due, excuses the non-breaching party’s duty to perform. Non-breaching party can 1) stop performance and sue immediately, 2) suspend performance and wait until the performance date to sue, or 3) treat the repudiation as rescission. Here,
Adequate Written Assurance
If reasonable grounds for insecurity arise regarding the other party’s performance, then a party may request a written demand for adequate assurance of due performance. Until the party receives the assurances, he may suspend his performance. If no assurances are given within a reasonable time, (not over 30 days) the non-breaching party may treat the K as repudiated. Here,
Performance Excused: Impossibility
K duties will be discharged if it has become impossible to perform them, such as damage or destruction of the subject matter after the K. (objective standard for impossibility.) Here,
Partial Performance Quasi K Recove
If a party partially performs before the impossibility arose, that party will have a right to recover in quasi K for a contract rate or a reasonable value of services rendered. Here,
Performance Excused: Impracticability
K duties will be discharged when an 1) unforeseen circumstance makes it 2) extremely difficult or unreasonably expensive to render performance. Here,
Impracticability - K’s for Goods
If the K is impossible or impractical, the seller of goods will be excused to the extent of the impossibility or impracticability. A shortage of raw materials or an inability to convert them into the product will usually excuse the seller, however, a mere increase in cost is rarely sufficient for discharge. Here,
Performance Excused: Frustration of Purpose
Frustration of purpose occurs when the mutually understood purpose of the K loses its value because of an unforeseen supervening act or event. Here,
Mutual Rescission
Rescission is the mutual cancellation of a K. The agreement to rescind is itself a new K that excuses further performance for both parties on the original K obligations. Under common law, consideration is required, however, UCC does not requires new consideration so long as the parties are acting in good faith. Here,
Modification
A modification is when the parties to a K agree to accept a new agreement in substitution of the existing K. Here,
Novation
A novation is when parties to a K mutually agree to substitution of a new party to perform. The original party is excused from performance an no longer has any K obligations. Here,
Accord and Satisfaction
An accord is an agreement by the parties to accept performance different from that originally promised. Under CL, new consideration is needed (e.g. payment of smaller amount but comes quicker). Under UCC, no consideration is required so long as the parties are acting in good faith. Here,
An accord and satisfaction excuse the original obligation, however, if the accord is not satisfied, the non-breaching party may sue on either the original agreement or the accord. Here,
Breach: Major/Minor
Failure to perform in accordance with the K terms is a breach. A breach is minor if one party substantially performs on the K and the non-breaching party gains a substantial benefit of the bargain despite the defective performance. If a breach is minor, the non-breaching party is not relived of his duty to perform but is entitled to damages. If the breach is major, the non-breaching party is excused from performance. Here,
Breach: UCC - Perfect Tender
The buyer of goods is NOT required to pay the seller unless the seller makes a perfect tender of goods. If less than perfect, the buyer can 1) retain goods and sue for damages 2) reject all or any commercial unit and sue for damages. However, in an installment K the seller must have an opportunity to cure if the seller has reasonable grounds to believe the improper tender would be acceptable. Here,
Payment is acceptance, but if without an opportunity to inspect it is not acceptance. Keeping goods without objection (roughly 2 weeks) is an implied acceptance. Once goods are accepted, they cannot later be rejected. Here,
Breach: Express Conditions
Express conditions make an obligation to perform contingent on the occurrence of some specific event. Strict compliance is required to satisfy an express condition and failure to satisfy a condition will be considered a material breach and excuse the non-breaching party from performance. Here,
Breach: Implied Conditions
Most courts will imply a condition of good faith and fair dealing in every K. Thus if a party acts in bad faith, it will release any obligation of performance by the other party. Here,
Breach: Constructive Condition by Substantial Performance
The condition of complete performance may be excused if the party has rendered substantial performance. Substantial performance arises if the breach was only minor. A breach is minor if the obligee gains the substantial benefit of the bargain despite the obligor’s defective performance. Here,
Breach: Excuse of Condition - Hindrance
The condition of complete performance may be excused if the party intentionally hinders the completion of the performance. Here,
Remedy - Money Damages
The purpose of money damages is to compensate the non-breaching party by placing her in a same position where where would have been if there had been no breach.
Money Damages: Expectation Damages
In most cases, the P’s standard measure of damages will be based on his expectations if the breach did not occur (benefit of bargain damages). This is calculated by determining the value of the K without breach, minus value of K with the breach. Here,
Money Damages: Reliance Damages
If expectation damages are too speculative, the court will award reliance damages. Reliance damages are awarded to put plaintiff in the position she would have been had the K never been formed. Here,
Money Damages: Consequential Damages
Consequential damages are special damages incurred as a result of the breach that can be recovered if D had reason to know the special damages were foreseeable at the time of the K. (e.g. lost profits from closing business due to delay). Here,
Money Damages: Incidental Damages - Sale of Goods
Incidental damages are always available for breach of sale of goods K. Incidental damages include expenses reasonably incurred by the buyer to return, replace, or resell non-conforming goods. Here,
Liquidated Damages
Liquidated damages are a K provision fixing damages for a breach. Liquidated damages are enforceable if 1) damages were difficult to forecast at the time of the K and 2) the amount is reasonable in view of the actual or anticipated harm caused by the breach. Here,
Remedy: Sale of Goods Contract
Buyer’s damages are the difference between the K price and cost to replace or the market price if no replacement. The buyer is also entitled to consequential and incidental damages, less any costs saved by not having to perform. Here,
Seller’s damages are 1) difference between contract price and resale price, 2) difference between contract price and market price, or 3) lost profits if volume seller. Here,
Remedy: Land Sale Contract
Damages are the difference between the K price and fair market value. Here,
Remedy: Employment Contract
Employer breaching must pay full K price, less money made if employee got similar position elsewhere. Employee breaching there is no cost to replace employee. Here,
Remedy: Construction Contract
Breach by owner 1) before construction = builder’s prospective profits, 2) during construction = K price minus the cost of completion, 3) after completion = full K price plus interest.
Breach by builder 1) before or during construction = cost of completing plus compensation for delay, 2) late completion = value of lost use.
Punitive (Treble) Damages
Punitive or punishment damages are usually not awarded in breach of K cases. Here,
Nominal Damages
Nominal damages may be awarded when a breach is shown but no actual loss is proven. Here,
Duty to Mitigate
The non-breaching party cannot recover avoidable damages. Thus, the non-breaching party must make reasonable effort to mitigate the damages, but may recover the expense of mitigation. Here,
Equitable Relief: Specific Performance
If a legal remedy is inadequate, the non-breaching party may seek specific performance, which orders the breaching party to perform. SP is always available for land sale K or rare or unique goods, but is NOT available for breach of a services K, even if the services are rare or unique. Here,
Equitable Relief: Injunction
A court may enjoin a breaching party from working for a competitor throughout the duration of a K if the services contracted for are rare or unique. Here,
Equitable Relief: Rescission
A K can be voided if there was a mutual mistake of material fact, or a unilateral mistake known by one party, misrepresentation, duress, illegality, etc. here,
Equitable Relief: Reformation
A contract can be changed to conform to the parties’ original intent. Here,
Equitable Relief: Reclamation
A seller can get goods back from a buyer who hasn’t paid if the seller demands return within 10 days of buyer receiving goods. Here,
Equitable Relief: Defenses
An action for equitable relief is subject to the defenses of latches, unclean hands, and sale to a bona fide purchaser. Here,
