Contracts Flashcards
Article 2 applies to:
Sale of goods
Article 2A applies to:
Lease of goods (NY only. On MBE, just common law)
Restitution definition:
Protects against unjust enrichment whenever K law yields an unfair result. Restitution is the remedy of last resort
How much to recover in restitution?
Reasonable value of benefit conferred, not K price
Generally, advertisements are NOT offers, unless
the ad specifies a quantity
Requirements Ks: OK under Art 2?
Yes, fine. But buyer can’t catch seller by surprise
Bilateral K definition:
Where an offer can be accepted in any reasonable way
Unilateral K definition:
Where an offer can be accepted only by performing
An offer lapses after…
a stated term or a reasonable time has passed
General rule of offer revocation:
Offer can be revoked any time before acceptance, whether direct revocation or indirect
Indirect revocation definition:
Offeror engages in conduct that indicates he’s changed his mind AND the offeree is aware of the conduct
Offer can’t be revoked in four exceptions:
Paid option
Firm offer (Art 2)
Foreseeable reliance
Starting to perform in a unilateral K (more than mere prep)
Firm offer (Art 2) general rule about revocability:
In a sale of goods, if a merchant promises in a SIGNED writing to keep an offer open, the offer is irrevocable (“merchant” and “signed” broadly defined under Art 2)
Firm offer (Art 2) has time limit of:
3 months
Starting to perform in a unilateral K means you can’t revoke offer in MBE or NY?
MBE only. In NY, offer can be revoked until performance has been completed
Timing of revoking an offer:
Revocation is effective only when it is RECEIVED (no mailbox rule)
Counteroffer general rule:
Operates as a rejection, but mere bargaining does not
Conditional “acceptance” general rule:
Not acceptance, really just a counteroffer
Acceptance varying offer (common law) general rule:
Acceptance must mirror offer - MIRROR IMAGE RULE
Acceptance varying offer (Art 2 sale of goods) general rule:
Acceptance does NOT have to mirror offer. Offeree’s adding or changing a term doesn’t prevent acceptance under Art 2
Art 2 battle of the forms (acceptance varying offer) - offeree’s term is included ONLY IF:
- Both parties are merchants
- There is no material change (arbitration clause is considered material), and
- No objection w/in a reasonable time
Revocation of an offer… death?
Death of either party before acceptance terminates a revocable offer, but not an irrevocable offer (e.g. option)
Acceptance of K in a unilateral K. General rule re starting performance:
Starting performance is not acceptance. Completing performance is acceptance
Improper performance of K… is it acceptance?
CL: simultaneous acceptance and breach
Art 2: simultaneous acceptance and breach unless seller is sending the goods as an accommodation to buyer
General rule: offeree’s silence is…
not acceptance
Mailbox rule general definition:
Acceptance is effective WHEN MAILED
revocation only good on receipt
Exceptions to the mailbox rule:
- Offer states otherwise
- Irrevocable offer
- Rejection sent first (then it’s just whichever gets there first)
Defenses against K formation: lack of capacity general rule
An incapacitated DEFENDANT may disaffirm the K
General rule of implied affirmation (defenses against K formation)
Defendant retains benefit after regaining If defendant does not disaffirm the K while incapacitated (i.e. under 18), then P can enforce K against him once D is no longer incapacitated (after he turns 18)
Exception to implied affirmation (defenses against K formation):
Incapacitated party is liable for necessaries (food, shelter, clothing, etc.), but only for the reasonable value, not K price
Defenses against K formation: economic duress: general rule
Rarely a successful defense against formation unless buyer did a 2nd deal only to get 1st deal and there’s no reasonable alternative
Defenses against K formation: misrepresentation/non-disclosure of a material fact
Misrepresentation/non-disclosure of a MATERIAL FACT is fatal
Defenses against K formation: ambiguity/misunderstanding
No K, unless one party knows or has reason to know about the misunderstanding. Then, innocent party’s meaning prevails
Defenses against K formation: mutual mistake
Mutual mistake about a material fact means no K
Defenses against K formation: unilateral mistake
Not a defense… K exists
Consideration definition:
There must be consideration (bargained-for legal detriment/benefit). Adequacy of consideration is irrelevant
Consideration: how do we treat “past consideration”?
MBE: past consideration is NOT consideration
NY: past consideration is consideration if expressly stated in a signed writing and can be proven
Consideration: illusory promise
An illusory promise is unenforceable
Consideration: K modification at CL (not sale of goods)
CL: new consideration is required to modify a K. Performing a preexisting duty is not enough
Consideration: K modification for sale of goods (Art 2)
Consideration isn’t required to modify a K, but you must show good faith reason for modification
Consideration: partial payment of a debt
If debt is due and undisputed, partial payment is not consideration
If debt was in dispute and you settle to pay a smaller amount, settlement agreement is enforceable
Consideration: time-barred debt collection
A written promise to pay a debt (whose collection is barred by statute of limitations) is enforceable even w/o consideration
Promissory estoppel as a substitute for consideration: general rule
Foreseeable reliance may make a promise enforceable even w/o consideration. Party must rely on other party’s promise
Covenant not-to-compete: general rule re public policy
Ct will invalidate or narrow a covenant not to compete that operates as a restraint of trade
Covenant not-to-compete: generally not allowed, but must consider two major factors
- scope of the covenant (consider duration/geography)
2. need for the covenant (consider uniqueness of services)
Public policy of Ks: exculpatory clause general rule
Exculpatory clause can eliminate liability for negligence, but not for gross negligence or intentional torts
Contract unconscionability general rule:
Generally not a valid defense against enforcement (unless terms are plainly unfair like indentured servitude or agreement process was unfair like small print)
Statute of frauds: transfer of an interest in real prop
Writing required
Statute of frauds: performance cannot be completed w/in a year
Doesn’t matter if performance actually takes more than 1 yr. If full performance w/in a yr was theoretically possible, no writing required
K begins when agreement is made, not when performance begins
Statute of frauds: sale of goods for $500 or more (art 2)
Writing required
Statute of frauds: Lease of goods for $1,000 or more (Art 2A, NY only)
Writing required if over $1,000 per year
Statute of frauds: suretyship (definition and general rule)
Def: suretyship is a promise to “answer for” the debt of another
General rule: writing required for suretyship
Statute of frauds: K modification
Must be in writing only if K AS MODIFIED (not original) falls w/in statute of frauds
Statute of frauds: satisfactory writing: sale of goods (art 2)
Must contain a quantity term and be signed by party to be charged w/ breach of K (the DEFENDANT)
Statute of frauds: satisfactory writing: lease of goods (art 2A, NY only)
Must state it’s a lease; include the quantity, duration, and rental payments; and be signed by the defendant
Statute of frauds: satisfactory writing: any K
Must contain all material terms and be signed by D
Exceptions to the statute of frauds: real property (2 exceptions)
No writing required:
Leases of one year or less
“Part performance” exception: requires 2 of 3: buyer is in possession of prop, buyer made SOME payment, or buyer made improvements to the prop
Exceptions to the statute of frauds: one-year prong: full performance exception
No writing needed with full performance over one year. No chance of fraud b/c there has been full performance
Exceptions to the statute of frauds: sale of goods $500 or more (Art 2): goods accepted or paid for by buyer
No writing needed, but this exception applies only to goods accepted/paid for, not the whole K
Exceptions to the statute of frauds: sale of goods $500 or more: judicial admission
No writing if there’s judicial admission that K exists
Exceptions to the statute of frauds: sale of goods $500 or more: merchant’s confirmatory memo
One party can use its own signed writing to satisfy the SoF against other party if:
- both parties are merchants
- writing claims agreement/has quantity, and
- there is no written objection w/in 10 days
Exceptions to the statute of frauds: sale of goods $500 or more: suretyship (“main purpose” exception)
MBE: if surety’s main purpose was to benefit himself, no writing required for enforcement
NY has no “main purpose” exception
Parol evidence rule definition:
Keeps out evidence of a prior or contemporaneous agreement (either oral or written) that contradicts a later writing
Exceptions to the parol evidence rule: to establish a defense against formation
Evidence of flaw in agreement process gets in
Exceptions to the parol evidence rule: to interpret a vague or ambiguous term
Can always get evidence to show what a VAGUE term means. Cts otherwise will give words their plain meaning
Exceptions to the parol evidence rule: to supplement/add to a partially-integrated writing
Def: a final statement of the terms included, but not a COMPLETE statement of all terms agreed to
(Only if writing appears incomplete on its face)
UNLESS K has a merger clause (K is limited to terms herein)
Exceptions to the parol evidence rule: subsequent developments
PER has nothing to do w/ what happens after an agreement is reduced to writing
Conduct can explain terms or fill in gaps of contract terms: (3 things)
- Course of performance
- Course of dealing
- Usage of trade
Seller’s warranties of quality in sale of goods: Express warranties
Seller is liable for breach of an express party. Use of a sample/model is an express warranty
Seller’s implied warranty of merchantability in sale of goods
Def: the goods are fit for their ordinary purpose.
Seller is a merchant who deals in goods of the kind who has specialized knowledge about the particular goods in the transaction
Seller’s implied warranty of fitness for a particular purpose
Def: goods are fit for buyer’s PARTICULAR purpose
Seller knows buyer has a special use for the goods and is relying on seller to pick out goods suitable for that use
Seller need not be a merchant!
Lessor’s warranties in lease of goods (Art 2A) (NY only)
Same warranties as under art 2.
Exception: finance lease (bank does not give IWM, the original merchant does)
Can a seller disclaim warranties?
Seller can disclaim IMPLIED, NOT EXPRESS, warranties
Can a seller limit buyer’s remedies for breach of any remedy?
Yes, so long as limitation is not unconscionable
Exception: limting buyer’s remedies for personal injury in the case of consumer goods is presumed unconscionable
Risk of loss and delivery by common carrier: ROL shifts to buyer when seller completes delivery obligations. For shipment K:
*** Seller must get the goods to a common carrier, make delivery arrangements, and notify buyer
Risk of loss and delivery by common carrier: ROL shifts to buyer when seller completes delivery obligations. For destination K:
Seller must get the goods to a specific destination (i.e. where buyer is located)
Risk of loss in non-carrier cases, if seller is a merchant:
Merchant-seller bears ROL until buyer takes possession of the goods
Risk of loss in non-carrier cases, if seller is not a merchant:
ROL passes to buyer once seller makes the goods available to buyer (tenders the goods)
Risk of loss in lease of goods (Art 2A) general rule:
ROL is on the lessor
Exception for “finance lease:” ROL is on the lessee
Performance of Ks for sale of goods: perfect tender rule
If tender isn’t perfect, buyer may reject the goods
Performance of Ks for sale of goods: option to cure
A seller who fails to make perfect tender may have an option to cure. Usually depends on whether time for performance has expired
If time has expired, seller can cure only based on prior dealings
In sale of goods, does perfect tender rule apply to installment Ks?
No, buyer may reject only for substantial impairment. Tender may be slightly imperfect a few times
In sale of goods, implied acceptance is:
*** When buyer keeps goods after having an opportunity to inspect them, acts as acceptance.
If imperfect, buyer can still get damages for breach
Buyer’s revocation of acceptance of goods. General rule: can’t do it, with one exception:
If non-conformity substantially impairs the value of the goods and was difficult to discover
Three options after rejection/revocation of acceptance of goods:
- Return
- Refund
- Damages
Performance of CL Ks: general rule
Doesn’t have to be perfect. Substantial performance is all that’s required (i.e. party can’t commit material breach)
Common law Ks: injured party can recover damages for any breach of K, whether breach is material or not. But general rule for excuse:
Only a material breach provides an excuse from performance (and then get damages)
(CL) Divisible Ks: where payment is to be made on a per unit basis, breaching party can recover:
the K price for any unit on which he has substantially performed
Anticipatory repudiation counts as breach. But can you take back AR?
Yes, so long as other party hasn’t relied on it
Failure to give adequate assurance (Art 2) general rule:
A party with reasonable grounds for being insecure about the other party’s performance may request in writing adequate assurance that other party will perform in accordance w/ K
Rescission (agreement to cancel K): for it to be good…
each party must have at least some performance remaining (consideration)
*** Def. of novation:
an agreement to substitute a new party for an existing one. All parties must agree
Impossibility may provide seller with an excuse: destruction of something necessary for performance
CL: provides excuse for non-performance
[Article 2: same.
Seller who bore ROL when goods were damaged is excused by impracticability.
For unidentified goods, seller is excused only if goods that were damaged had been “identified to the K”]
Impossibility of performance: death/incapacity of an ESSENTIAL person
If there are unique skills that can’t be replaced, excused from performance
Impossibility of performance: increase in the cost of seller’s performance
MBE: no excuse
NY: Look at $ and % increase. May provide an excuse
Impossibility of performance: frustration of buyer’s primary purpose
If seller knew what buyer’s purpose was when they entered into K, and it’s now impossible, there may be excuse
*** Impossibility of performance: failure of an express condition
If an express condition isn’t met, performance is excused. Almost good enough isn’t enough
NOTE: express condition doesn’t create independent obligation, but just limits obligations already in the K
Impossibility of performance: satisfaction of an express condition is measured by a reasonable person, unless K deals w/ art or personal taste
If reasonable person would be satisfied, person is not excused by performance (i.e. payment)
Impossibility of performance: express condition: occurrence of a condition may be excused by the later action/inaction of the person who…
is protected by the condition
E.g. express condition that X get mortgage. X doesn’t try to get mortgage. X thus loses protection and has no excuse from performance
General rule of specific performance as non-monetary remedy:
Equitable remedy available only if damages are inadequate to compensate the injured part.
Frequent w/ real prop
Specific performance for sale of goods (Art 2)
Available only if the goods are unique or there are “other proper circumstances” (e.g. an inability to buy substitutes in the market)
Specific performance available in a service K?
No, but injunctive relief may be
Unpaid seller’s right to reclaim goods (Art 2): general rule and exception
General rule: not available under Art 2
Exception: if buyer was insolvent when it received the goods and seller makes a demand w/in 10 days after buyer received them
Liquidated damages: general rule
Upheld if damages were difficult to estimate and are a reasonable forecast of probable damages, but cannot operate as a penalty
Expectation damages (art 2) when buyer doesn’t cover in good faith
Usually, expectation damages are based on cover price when buyer covers in good faith. But here:
expectation = market price - K price.
Expectation damages (art 2) if buyer keeps non-conforming goods
Expectation damages = value as promised - value delivered.
Lost profit damages general rule:
Damages are lost profits. Only applicable when seller is a lost volume dealer
Look for: dealer resells the same goods for the sa,e price (dealer has lost his profit)
Expectation damages for when seller can’t resell goods:
Seller gets the full K price
Incidental damages definition:
cost to injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction
Consequential damages definition
Damages special to this P that were reasonably foreseeable to the breaching party at the time of the K
Note: not available to a seller under Art 2 (only buyer)
Avoidable damages rule:
An injured party cannot recover damages he could have avoided (“mitigated”) w/ reasonable effort
Entrustment (art 2) general rule:
An owner who entrusts goods to a merchant who deals in goods of the kind (ie, a dealer) has no rights against a bona fide purchaser
(You take your watch to jeweler to be repaid, who sells it to 3rd party)
Third party beneficiary: general rule of rescission and modification
Promisor and promisee can rescind or modify the K until the rights of the TPB have “vested” (she learns about K and relies on it)
Third party beneficiary: is promisor liable to TPB?
Yes, intended beneficiary can sue promisor even absent privity of K
Third party beneficiary: is promisee liable to a creditor beneficiary?
Yes, only when intended beneficiary is a creditor. Otherwise, no right against promisee
Delegation of duties general rule:
Contractual duties may be delegated w/o the consent of the person to whom performance is owed (the “obligee”)
Exception to delegation of duties rule:
K language prohibits delegation/assignment
Special skill of reputation
Delegation of duties: in breach of K, can you sue the delegating party?
Delegating party remains liable. (Contrast w/ novation)
Delegation of duties: in breach of K, can you sue the delegate party?
Only if delegate got consideration
Definition of assignment of rights:
Two parties make K; later, one (assignor) transfers his rights to a third party (assignee). The party who owes the duty is the obligor
Assignment of rights: language of present transfer
Must say “I assign” not “I promise to assign”
Assignment of rights: is consideration necessary?
No consideration needed
Assignment of rights: cannot substantially change duties of obligor. General rule
You can assign rights so long as it doesn’t change duties of the parties
Assignment of rights: obligor liable to assignee?
Assignee can sue obligor if not paid for work.
NOTE: assignee has rights only when obligor learns of the assignment
Multiple assignment of rights: gratuitous (“gift”) assignments… revocable?
Easily revocable. The last gratuitous assignee prevails over earlier gratuitous assignees b/c a later gift assignment revokes an earlier one
Multiple assignment of rights: general rule:
Assignments for consideration are durable.
The first assignee for consideration prevails over all subsequent assignees (as well as prior gratuitous assignees)
In K for sale of goods, if parties don’t reach agreement on price, can a court provide reasonable amount?
Yes, ct will supply reasonable price at the time of delivery
Accord and satisfaction definition:
Accord: agreement in which one party to an existing K agrees to accept, in lieu of the performance he’s supposed to receive from the other party, some other, different performance
Satisfaction: performance of the accord agreement
Assignment of rights… must it be in writing?
No, oral is fine
Assignment of rights: rule for gratuitous assignment
An assignment given for no value (gratuitous) is generally revocable, UNLESS
obligor has already performed or assignor is estopped from revoking b/c he should foresee that assignee will rely on assignment
Under Art 2, a shipment of nonconforming goods is usually an acceptance and a breach. But if seller notifies buyer that a shipment of nonconforming goods is offered only as accommodation, then
the shipment is a counteroffer, rather than acceptance. Buyer is free to accept or reject it
In a real estate K, does death of a party terminate the K?
No, not unless the agreement says so. Usually analyze w/ equitable conversion (heir of the deceased person steps in)
