Contracts Flashcards
Bilateral contract
Mutual exchange of promises; most contracts, but see unilateral contracts
Unilateral contract
(1) offeror clearly indicates that completion of performance is the only manner of acceptance
(2) offer is to the public (reward)
Void contract
Totally without any legal effect (think illegal); neither party can enforce
Voidable contract
One or both parties may elect to avoid
Creation of a contract: what to look for
(1) was there mutual assent? (offer; acceptance)
(2) was there consideration or a substitute for consideration (promissory estoppel; detrimental reliance; good faith modification under UCC)
(3) are there any defenses to creation of the contract (mistake; lack of capacity; illegality; statute of frauds)
Mutual assent
Objective standard: manifest a present intention to enter into a contract
Offer: what to look for
(1) was there an expression of a promise, undertaking, or commitment to enter into a contract?
(2) was there certainty and definiteness in the essential terms?
(3) was there communication of the above to the offeree?
Offer: definite and certain terms
whether enough of the essential terms have been provided for the contract to be capable of being enforced
Required terms: real estate transactions
identify land and price
Required terms: sale of goods
quantity; requirement or output is good unless unreasonably disproportionate to (i) any stated estimate; (ii) any normal or otherwise comparable prior output or requirements
Required terms: Services
Nature of work
Required terms: missing terms
(1) the fact that one or more terms are left open does no prevent the formation of a contract if (i) parties intended to make a contract; (ii) reasonably certain basis for giving a remedy
(2) Article 2 allows the court to supply reasonable terms (price: reasonable price at time of delivery)
Termination of offer: revocation
(1) An offeror may revoke by directly communicating the revocation to the offeree
(2) may revoke indirectly if offeree receives: (i) correct information; (ii) from a reliable source (iii) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
(4) effective when received by offeree
Limitations on power of revocation
(1) options: offeree gives consideration for a promise by the offeror not to revoke
(2) merchant’s firm offer under article 2: (i) merchant; (ii) offers to sell goods in a signed writing; (iii) writing gives assurances that it will be held open. Not revocable for time stated to maximum of three months
(3) detrimental reliance: when offeror could reasonably expect that the offeree would rely to her detriment on the offer and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable length of time
(4) Part performance (true unilateral contract): become irrevocable once performance has begun; must give reasonable time to complete performance; offeree is not bound to complete
(5) Part performance (offer indifferent as to manner of acceptance): once offeree begins performance the contract is complete and revocation becomes impossible (notification of start of performance may be necessary)
Termination of offer: termination by offeree, rejection
(1) express rejection
(2) counteroffer as rejection (distinguish from mere inquiry)
(3) effective when received
(4) counter offer to option is not a rejection b/c it is held open
Termination of offer: lapse of time
Offer may be terminated by offeree’s failure to accept within time specified or within a reasonable time
Termination of offer: by operation of law
(1) death or insanity of either party
(2) Destruction of the proposed contract’s subject matter
(3) supervening illegality
Mirror image rule
(1) common law: rejection and counter offer
(2) article 2 battle of the forms: effective as acceptance unless expressly made conditional on assent to different terms
Mail box rule
(1) acceptance is effective at the moment of dispatch provided that the mail is properly addressed and stamped
(2) exceptions: (i) offer stipulates; (ii) option contract; (iii) offeree sends a rejection and then sends an acceptance; (iv) if acceptance is sent and then rejection, acceptance is effective unless rejection is received first
Auction contracts
(1) sale is complete when auctioneer announces by the fall of the hammer
(2) with reserve: auctioneer may withdraw the goods at any time until he announces completion of the sale
Consideration: elements
(1) bargained for exchange between the parties
2) that which is bargained must be considered legal value (benefit or detriment
Consideration: past consideration
(1) generally does not satisfy bargain requirement
(2) exception: (i) act was performed by the promisee at the promisor’s request; (ii) in response to an emergency, a subsequent promise to pay will be enforceable
Consideration: preexisting legal duty
(1) generally insufficient for consideration
(2) exceptions: (i) new or different consideration is promised; (ii) promise to ratify a voidable obligation; (iii) preexiting duty is owed to a third person rather than promisor; (iv) honest dispute as to the duty; (v) unforseen circumstances sufficient to discharge a party
Consideration: contracts that satisfy mutuality requirement
(1) requirement and output
(2) conditional promises, unless condition is entirely within promisor’s control
(3) contracts where a party has a right to cancel, if that right is somehow restricted
(4) exclusivity agreements (court will find an implied promise to use best efforts)
(5) voidable promises (one made by infant)
(6) unilateral and option contracts
(7) gratuitous suretyship promises made before or at the same time that consideration flows to the principal debtor
Promissory estoppel
(1) promisor should reasonably expect to induce action or forbearance
(2) of a definite and substantial character
(3) and such action or forbearance is in fact induced
Defense to formation: mutual mistake as to existing
both parties are mistaken about exiting facts relating to the agreement, may be voidable by the adversely affected party if: (i) the mistake concerns a basic assumption on which the contract is made; (ii) the mistake has a material effect on the agreed upon exchange; (iii) the party seeking avoidance did not assume the risk of the mistake
Defense to formation: unilateral mistake
(1) Mistake will not prevent formation.
(2) if nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party
Defense to formation:mistake by intermediary (transmission)
message as transmitted is operative unless the other party knew or should have known of the mistake
Defense to formation: ambiguous contract language
(1) neither party aware of ambiguity: no contract unless both parties intended the same meaning
(2) both parties aware: no contract unless both parties intended the same meaning
(3) One party aware: binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words
Defense to formation: fraudulent misrepresentation
(1) contract voidable
(2) elements: (i) induces another to enter a contract; (ii) by using fraudulent misrepresentation; (iii) party justifiably relied on the fraudulent misrepresentation
Defense to formation: nonfraudulent misrepresentation
(1) contract voidable if innocent party justifiably relied on the misrepresentation and the misrepresentation was material
(2) material if: (i) information asserted would induce a reasonable person to agree; (ii) the maker of the misrepresentation knew the information asserted would cause a particular person to agree
Defense to formation: absence of consideration
If the promises exchanged at the formation lack the elements of bargain or legal detriment, no contract exists
Defense to formation: public policy defenses (illegality)
(1) contract is void if consideration or subject matter is illegal
(2) exceptions: (i) plaintiffs is unaware of illegality while defendant knows of the illegality; (ii) parties are not in pari delicto; (iii)illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than protection of the public
(3) if only purpose was illegal: contract is voidable by party who was (i) unaware of the purpose; (ii) aware but did not facilitate the purpose, and the purpose does not involve serious moral turpitude
Defense based on lack of capacity: contracts of infants
(1) infants generally lack capacity to bind themselves
(2) adults are bound to contractual promises to infants
(3) disaffirmance: (i) may disaffirm at any time before reaching majority; (ii) must return anything received under the contract that still remains at the time of the disaffirmance (no obligation for things squandered, wasted, or destroyed)
(4) Affirmance: may chose to be bound by contract upon reaching majority expressly or by conduct
(5) liable in quasi-contract for necessities furnished to them
Defense based on lack of capacity: mental incapacity
(1) contract is voidable
(2) liable in quasi-contract for necessities furnished to them
Defense based on lack of capacity: intoxicated persons
(1) so intoxicated that does not understand the nature and significance of promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication
(2) may affirm contract upon recovery
(3) liable in quasi-contract for necessities furnished during period of incapacity
Defense based on lack of capacity: Duress or undue influence
(1) voidable and may be rescinded as long as not affirmed
(2) economic duress: (i) party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; (ii) there are no adequate means available to prevent the threatened loss
(3) undue influence: (i) undue susceptibility to pressure by one party; (ii) excessive pressure by the other party
Defenses to enforcement: statute of frauds
(1) must be evidenced by a writing signed by the parties sought to be bound
(2) agreements covered:
(i) executor or administrator promises to personally pay estate debts;
(ii) promises to pay the debt of another (suretyship) however if purpose is to serve promisor’s own pecuniary interest, not within statute of frauds;
(iii) promises in consideration of marriage
(iv) interests in land. includes: (a) leases for more than one year; (b) easements for more than one year; (c) fixtures; (d) minerals or structures if severed by the buyer; (e) mortgages.
(v) performance not within one year. Effective date is date of agreement;
(vi) Goods priced $500 or more. Exceptions: (a) specifically manufactured goods where made substantial beginning in manufacture or commitments for purchase; (b) admission in pleadings or court; (c) payment or delivery of goods
Statute of frauds: real property part performance doctrine
Two of three: (1) payment in whole or part; (2) possession; (3) valuable performance
Statute of frauds: confirmatory memo rule
Between merchants if one party within a reasonable time after an oral agreement has been made sends the other party a written confirmation of the understanding that is sufficient under SOF to bind sender and buyer if (i) reason to know of contents; (ii) does not object in writing within 10 days of receipt
Defenses to enforcement: unconscionability
Examples: (1) inconspicuous risk-shifting provisions; (2) contracts of adhesion (take it or leave it); (3) exculpatory clauses (intentional wrongful acts); (4) limitations on remedies (fails of its essential purpose)
Extrinsic evidence outside parol evidence rule: attacking validity
Agreement never came into being: (1) formation defects: fraud, duress, mistake, illegality; (2) conditions precedent: oral agreement that the written contract would not become effective until a condition occured
Extrinsic evidence outside parol evidence rule: interpretation
If there is uncertainty or ambiguity as to meaning of terms within an agreement, parol evidence can be received to aid in interpretation
Extrinsic evidence outside parol evidence rule: showing of true consideration
evidence showing that consideration stated in the contract was never paid
Extrinsic evidence outside parol evidence rule: reformation
Alleging facts entitling party to reformation
PER: Collateral agreements and naturally omitted terms
(1) Parol evidence is often said to be admissible if the alleged parol agreement is collateral to the written obligation
(2) naturally omitted term: if (i) does not conflict with the written integration; and (ii) concerns a subject that similarly situated parties would not ordinarily be expected to include in the written instrument
PER: Article 2 rule
may add consistent additional terms through (1) course of dealing; (2) usage of trade; (3) course of performance unless: (i) merger clause; (ii) writing was intended as a complete and exclusive statement of the terms of the agreement
Battle of the forms: non merchant
Terms of offer govern
Battle of the form: between merchants additional terms
Additional terms usually included unless: (1) materially alter original terms; (2) expressly limit acceptance to the terms of the offer; (3) offeror has already object or objects within a reasonable time
Battle of the form: between merchants different terms
Some courts treat like additional terms, some courts follow “knockout rule”
UCC article 2 gap fillers
(1) Price: reasonable price at time of delivery
(2) place of delivery: seller’s place of business
(3) time for shipment or delivery: reasonable time
(4) time for payment: time and place at which the buyer is to receive the goods
(5) Assortment: if specifies for assortment this is at the buyer’s option
Delivery terms and risk of loss: noncarrier case
If seller is a merchant risk of loss passes to the buyer only when she takes physical possession of the goods
If seller is not a merchant risk of loss passes on tender of delivery
Delivery terms and risk of loss: Shipment contract
ROL passes to buyer when goods are delivered to the carrier
Delivery terms and risk of loss: destination contract
ROL passes to buyer when goods are tendered to the buyer at the destination
Delivery terms and risk of loss: C.I.F. and C&F
Shipment contracts (cost, insurance, freight or cost and freight)
Delivery terms and risk of loss: F.A.S.
Free alongside: risk of loss passes to the buyer once the goods are delivered to the dock
Delivery terms and risk of loss: FOB
Free on board: seller bears the risk and expense of getting the goods to the named location
Delivery terms and risk of loss: defective goods
ROL does not pass to buyer until the defects are cured or accepted in spite of defects
Delivery terms and risk of loss: revocation of acceptance
ROL is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer’s insurance coverage
Delivery terms and risk of loss: sale or return
Ordinary sale; risk remains with buyer while the goods are in transit on the way back to seller
Delivery terms and risk of loss: sale on approval
Risk of loss does not pass to the buyer until she accepts
Warranties: warranty of title
Any seller of goods warrants that title transferred is good and that the transfer is rightful and that there are no liens or encumbrances against the title of which the buyer is unaware
Warranties: warranty against infringement
Merchant seller regularly dealing in goods of the kind sold warrants that goods are free of patent, trademark, copyright or similar claims
A buyer who furnishes specifications must hold seller harmless
Warranties: Implied warranty of merchantability
(1) Implied in every sale by a merchant who deals in goods of the kind sold
(2) fit for ordinary purposes for which such goods are used
(3) knowledge of defect is not relevant
Warranties: Implied warranty of fitness for a particular purpose
(1) any seller has reason to know of the particular purpose for which the goods are to be used and has reason to know that the buyer is relying on the seller’s skill and judgment to select suitable goods
(2) buyer in fact relies
Warranties: express warranties
(1) affirmation of fact or promise made by the seller to the buyer; description of the goods; sample or model
(2) part of basis of the bargain (need only come at such a time that the buyer could have relied on it)
(3) no need to prove actual reliance
Warranties: Disclaimer warranty of title
Specific language or by circumstances that give the buyer notice that seller does not claim title
Warranties: disclaimer of implied warranties
(1) specific disclaimers: (i) merchantability: mention merchantability and be conspicuous; (ii) fitness for particular purpose: conspicuous writing
(2) general disclaimers: (i) general language (“as is”); (ii) examination or refusal to examine (no warranty as to defects that a reasonable examination would have revealed)
(3) course of dealing, etc.
Warranties: express warranty
negation or limitation is inoperative to the extent that such construction is unreasonable
Warranties: damages for breach
(1) generally difference between value of goods accepted and value of the goods as warranted, measured at time and place of acceptance
(2) breach of warranty of title: value of goods as warranted
Modification of contracts: consideration
(1) Generally cannot be modified unless new consideration
(2) under UCC valid without consideration
Modification of contracts: Writing
(1) written contract can be modified orally. Even if contract provides that it may be modified only by a writing
(2) Sale of goods, modification must be in writing if the contract as modified falls within SOF. No modification clauses are given effect.
Performance
(1) substantially perform under common law
2) Article 2: perfect tender (must be exactly as promised in the contract
Conditions: defined
(1) an event or state of the world that must occur or fail to occur before a party has a duty to perform
(2) An event or state of the world the occurrence or nonoccurrence of which releases a party from his duty to perform
Classification of conditions
(1) condition precedent: must occur before an absolute duty of immediate performance arises in the other party
(2) condition concurrent: capable of occurring together and that the parties are bound to perform at the same time
(3) condition subsequent: occurrence cuts off already existing absolute duty to perform
Conditions: constructive or implied
(1) each parties performance is conditioned on the other party rendering his performance or making a tender of his performance
(2) cooperation and notice
Conditions: have conditions been excused?
(1) hinderance or failure to cooperate
(2) actual breach
(3) anticipatory repudiation
