contracts Flashcards
bilateral contract
a contract with an offer that may be accepted by either a promise to perform or beginning performance.
if offeree performs by shipping nonconforming goods, is there a contract?*
-yes, there is a contract but seller has breached.
- if the offeree sends the nonconforming goods with a note that they are offered as accommodation, then there is not a breach but offeree has made a counteroffer that can be accepted or rejected
consideration*
i) bargained for exchange between the parties;
ii) where each party agrees to do or not do something of legal significance (the promise not to do something must benefit the other party)
past consideration
promise in exchange for something that has already been done is not consideration.
exception: if payment promised after an act is done, but if promisor knew when he requested the act that promisee would expect payment
promissory estoppel*
promise is enforceable to prevent injustice if:
promisor should reasonably expect to induce action or forbearance.
such action or forbearance is induced.
damages will be expectation damages but court can limit it to reliance damages (money spent bc of promise) if justice requires
what can a merchant do to hold an offer open?
merchant’s firm offer
or option w/ consideration
when can a unilateral contract offer be revoked?*
at any time before the offeree starts performing.
how can the offeree accept an offer for a unilateral contract?*
by full performance
must know of the offer when performance completed
consideration: how can a debtor give consideration for a promise by the creditor to accept a smaller amount of money?
by giving new or different consideration (different form of payment)
ex: paying before the time the debt is due, paying the money to another person, paying in a different medium
consideration in a suretyship contract
suretyship contract = promise to pay another’s debt
If surety makes his promise to pay before (or at the same time as) the creditor performs or promises to perform, the creditor’s performance or promise will serve as consideration for the surety’s promise, because the creditor has incurred a detriment in exchange for the surety’s promise.
consideration: ratification
A promise to perform a voidable obligation
enforceable despite the absence of new consideration.
consideration: preexisting duty rule & exceptions*
rule: a promise to perform, or the performance of, an existing legal duty is not consideration.
exceptions:
- honest dispute as to duty (ex: dispute about a debt)
- unforeseen difficulty in performing if it rises to the level of impracticability
- modification of contract for sale of goods- if modify in good faith, no new consideration needed.
- preexisting duty was owed to a 3rd party, not promisee
- ratification of a voidable contract does not require new consideration
- new or different consideration (i.e. addition or change in performance or type of payment, or early performance)
requirement and output contract*
promise to buy all that one requires
promise to sell all that one decides to make (or all that seller produces)
other common words: agreement to exclusively sell or exclusively buy
enforceable. however, “to buy all that one desires” or to “sell all that one chooses” are illusory promises
what law applies to contracts involving services or land? exceptions?*
Common law
Mixed contract where court determines goods aspect is dominant.
when payment is divided between goods and non-goods, court applies UCC to goods part and common law to non-goods part.
void contract*
ineffective (no legal effect) from the start and may not be enforced
example: agreement to do something illegal at the time it was made
voidable contract*
can be enforced, but one party has a defense to avoid the contract in the event of enforcement (mental illness, infancy)
unenforceable contract
an agreement that is otherwise valid but cannot be enforced because of SOF or statute of limitations
Restitution and examples of when available*
Restitution damages are awarded to prevent unjust enrichment when a benefit has been conferred on one party
1 Quasi contract - a contract implied by a court to avoid unjust enrichment (plaintiff conferred a benefit, d should know P reasonably expects payment)
2 If a contract is unenforceable because a minor or person lacking in capacity is a party, and the person lacking capacity accepts services or goods that are necessaries - food, education, health care, shelter. Recipients will be expected to pay value
3 when one party has partially performed but the other has breached, to prevent unjust enrichment
4 If the contract price is lower than the actual value of goods or services provided before the breach
5 when the contract is unenforceable under SOF and one party in a services contract has partially performed
if a buyer and seller have a requirement contract, and buyer’s requirements increase, K still enforceable?
yes, as long as not unreasonably disproportionate to a stated estimate or any normal prior requirement
(ex: usually 1,000, next year 1,025 ok but 1,000 Y1 and 5,000 Y2 probably not)
when is an offer terminated? why does this matter?*
- lapse of time (a stated time, or reasonable time)
- operation of law (death or incapacity of a party, subject matter of contract destroyed, later illegality)
- revocation by offeror
- rejection
- counteroffer
An offer cannot be accepted once it is terminated.
is an offer subject to an option terminated if one party dies or becomes insane?*
No, this is an exception to termination of an offer by operation of law based on death of a party
methods of revocation*
later unambiguous statement by offeror to offeree
indirect revocation by knowledge of offeror’s conduct or correct, reliable information about offeror’s conduct that would lead a reasonable person to believe the offeror no longer wishes to make the offer
irrevocable offers*
a) option
b) merchant’s firm offer
c) detrimental reliance- reas. foreseeable, detrimental reliance treated as an option for a reas. time
d) part performance (distinguish mere preparation to perform) of a unilateral contract- irrevocable for reas. time to complete
rejection defined*
a statement that offeree does not intend to accept
when is a rejection effective?*
a revocation?*
acceptance?*
rejection: when it is received.
exception- rejection & then acceptance- whichever arrives first
revocation: when received
acceptance: when sent
exception- option K acceptance only effective when received; if acceptance sent and then a rejection, rejection will be effective if arrived first and offeror detrimentally relied
counteroffers- definition and common law and UCC rules*
offer made by offeree about the same subject matter but with different terms.
UCC: only a conditional acceptance is a counteroffer (ex: i accept, but only if.. or on condition that, or but, so long as, etc.). otherwise a contract is still formed, but whether the new terms are included depends on whether both parties are merchants.
effect: rejection & new offer that offeror may or may not accept
UCC- acceptance must be express, sending goods isn’t an acceptance of conditioned terms
mirror image rule*
at common law, a response to an offer that adds new terms is treated as a counteroffer
if an acceptance adds terms and only 1 party or neither party is a merchant, is the term part of the K?*
no, but there is still a contract; the proposed new terms only will become part of the contract if the offeror accepts them explicitly.
if the offeree in a sale of goods contract expressly insists that a new term be part of the contract, can it ever be part of the contract?*
Yes, but only if the offeror accepts it
can silence be acceptance?
yes, if the offeree silently takes benefits or if prior dealings between the parties or trade practices make it reasonable to think silence means that the offer is accepted.
can an offer be assigned?
No, an offer can only be accepted by a person it was made to.
An option, however, can be assigned.
detriment
agreeing to do something you are not legally obligated to do or forbearing from something you have a right to do
if there is a legal defense to promisor having to pay a debt, can a promise to pay be enforceable without consideration?
yes, if it is in writing.
if contract lacks consideration, is there a way for it to still be enforced?*
promissory estoppel
defenses to contract formation*
- lack of capacity (minor, intoxicated, mentally ill)
- statute of frauds
- mistake
- ambiguity
- illegality
- fraud/ misrepresentation
- duress
- unconscionability: unfair surprise or unequal bargaining power (ex: fine print clauses that limit or reduce liability, exculpatory agreement that exempts intentional or reckless conduct, covenant not to compete w/ no limit or when unnecessary, contract of adhesion, limitation to repair remedy when item destroyed)
unconscionability may be applied to set aside a bad term or whole contract
writing to satisfy statute of frauds*
- identify parties
- must reflect the material terms
- be signed by the party to be charged
there can be multiple letters or emails as long as they state material terms & have some kind of signature by the party being sued
Statute of frauds - contracts that must satisfy*
MY LEGS
- marriage (in consideration of)
- year- can’t be performed w/ in 1 year
- land- interest in. includes lease >1 yr, easement, mortgage, profit, fixture
- estate debts- executor/admin promise to pay
- goods ($500 or more)
- suretyship (promise to answer for the debt of another- i.e. someone else already promised to pay and you will pay if they don’t)
if K says nothing about time, is it w/in SOF? what if K is for life of person?*
no time stated- no, theoretically it is capable of being performed within 1 year. exception is easements.
life- no, again, theoretically the person could live for less than 1 year from date of K.
defenses to failure to satisfy SOF*
*AW PASS
a) performance
- land- improvement; payment; possession (2/3)
- services- full performance (note: part performance is no defense, but can recover in quasi contract)
b) specially manufactured goods
c) written confirmation from a merchant,
d) admission in court (UCC)
e) acceptance of goods (UCC- part or all. only as to part accepted)
f) payment for goods (UCC- part or all. only as to part paid for, but if item is indivisible, part payment will save the contract.)
c) surety contract for benefit of surety
merchant confirmatory memo rule*
-in contracts between merchants, if one party sends the other written confirmation of the contract, the sender is bound from the date of transmittal AND the recipient is bound if
- has reason to know of its contents
- does not object in writing within 10 days
if someone is going to do something for someone else (delegation/assignment), when is a writing necessary?
when the contract itself would require a writing. the authorization must be of equal dignity with the K.
if a contract is modified, does the modification need to be in writing?
yes, if the modification would be in the SOF. (ex: original lease 1 year, extended to 3….needs to be in writing but agreement reducing original 3 yr lease to 1 need not be written)
ex2: sale of goods for $400, modified to $500- modification must be in writing.
is a contract provision requiring all modifications to be written valid?
No, at common law. whether a writing is necessary is determined by the subj matter of the modific.
UCC- effective unless waived.
what is capacity? What is the effect if someone lacks capacity to form a contract?
rule: contract is voidable if a person lacks the capacity to understand the nature and significance of their promise.
it’s a defense to contract formation. they can disaffirm the contract. other person can’t.
misrepresentation defense*
- justifiable reliance
- material misrepresentation (would induce a person to agree)
Contract is voidable.
implied statement or conduct can form basis for misrepresentation (falsely denying knowledge of a material fact, or frustrating investigation)
ambiguity defense
language with at least 2 possible meanings.
neither or both parties aware- no K unless both parties intended same meaning
one party aware- binding K based on what the ignorant party believed the meaning was
duress
assent caused by improper threat. voidable by the party under duress.
(economic duress = party threatens to commit a wrongful act seriously threatening the other’s property or finances; no adequate means to prevent the loss).
mutual mistake
must concern a basic assumption the K is made on;
mistake must have material effect on the K;
party must not assume risk
NOTE: risk that value is different than contracted for is assumed by both parties; if one party is experienced, more likely to be found to have assumed a risk.
if elements are met there is no contract
unilateral mistake
will not prevent formation of K unless the other party knew or had reason to know of the party’s mistake. (ex: bid too low related to others)
illegal contract
if subject matter of contract is illegal, K is void.
if the purpose is illegal, it is voidable by a party unaware of the purpose and had no reason to know.
parol evidence rule*
when the parties express their agreement in writing with intent that the writing embody the final expression of their bargain, any other written or oral expressions made prior or contemporaneously with the writing are inadmissible to vary or add to the terms.
*even if complete integration, parol evidence admissible for:
- proving defenses to formation (fraud, duress, mistake, illegality)
- proving existence of conditions precedent to effectiveness
- evidence showing consideration or lack of it
- aiding the fact finder in interpreting the meaning of contract terms
- facts entitling the party to reformation (i.e. mistake in reducing to writing)
- evidence of later modificaation
when can parol evidence be used to add terms?*
if the agreement is a partial integration, or if the terms do not conflict with the agreement and similar situated parties wouldn’t expect the term to be in agreement
or, if there is a modification (terms agreed on after agreement made)
Under ucc additional consistent terms can be proven and terms can be explained or augmented by course of performance, course of dealing, custom even if no ambiguity
can contract terms be supplied or explained by conduct?
UCC
yes- in order of priority
1.course of performance (this contract)
2. course of dealing (conduct in previous transactions)
3. custom & usage (other parties in industry)
delivery terms of a contract- carrier*
Default is shipment contract
shipment contract: delivery obligation complete when placed in hands of carrier (default)
destination contract: goods delivered when they arrive at a destination. Indicated by FOB usually
risk of loss*
-determines who bears the loss when goods are destroyed when neither buyer or seller is to blame.
shipment: risk of loss passes to buyer when in hands of carrier
destination: risk of loss on seller until delivered.
when is payment due in a shipment contract? in a destination contract?*
shipment- when the goods are put in the hands of the carrier
destination- when the goods reach the specified destination
in a noncarrier case, when does risk of loss pass?*
if seller is a merchant: when buyer takes possession
if seller is not: when seller tenders delivery (has ready and instructs on how to pick up )
express warranty*
-statement of fact or promise made by seller (not sales talk or opinions)
-sample or model provided by seller
-description of the goods
implied warranty of merchantability*
arises in a sale by merchant who deals in goods of the kind sold
goods must be fit for ordinary purposes goods are used for
implied warranty of fitness for particular purpose*
- imposed whenever:
a) any seller has reason to know - of the particular purpose buyer will use goods for AND that buyer is relying on seller’s skill and judgment in selecting suitable goods, and
b) buyer in fact relies
disclaimer of warranty*
very difficult to disclaim express warranties but implied warranties of merchantability and fitness can be disclaimed
-specifically, must be conspicuous (written or displayed so that a reasonable person ought to notice it) AND mention the warranty disclaimed
-or generally, by “as is” language
defects that would be obvious upon examination are disclaimed by examining goods or refusing to
performance requirement- UCC and common law*
common law: substantially perform all that is required by the K
UCC: perfect tender rule- delivery (time, place, manner) AND condition of goods must be exactly as contract calls for. if goods do not conform, seller breaches and buyer may reject all, accept all, or reject some and accept the rest.
Exception under ucc- right to cure before performance due date or reasonable time after if reasonable belief that the goods would be accepted
if goods are not a perfect tender, but close, can buyer reject the goods?
yes, as long as buyer rejects in good faith.
note: often there is still a K, b/c there has been an offer that was accepted.
buyer must hold rejected goods w/ reasonable care.
cure
Under ucc seller has a right to cure within the original time of performance. must give notice before doing so.
after original time of performance: VERY limited right. must have reasonably believed that goods would be acceptable to buyer (ex: by prior deals.)
rejection of an installment in an installment contract
buyer can only reject if:
1) defect substantially impairs installment’s value
2) defect cannot be cured
K is breached only if defect in installment substantially impairs value of whole K
acceptance of goods
- after reas. opportunity for inspection, buyer indicates the goods conform or that she will keep them despite nonconformance
- fails to reject within reasonable time
revocation of acceptance- goods
buyer may revoke if:
- the defect substantially impairs the goods’ value
- excusable ignorance of grounds for revocation
- revokes within a reasonable time after discovery
condition
an event or circumstance that must happen before a party has a duty to perform, or that releases a party’s duty to perform
condition precedent: occurrence triggers duty
condition subsequent: occurrence cuts off duty
anticipatory repudiation*
-words or conduct unequivocally indicating that the party will not perform
applies in both sale of goods and common law
options in case of anticipatory repudiation*
1 immediately sue and make a substitute contract with someone else
2 suspend performance, sue after due date
3 urge to perform (doesn’t waive right to sue after due date)
2 and 3 give chance for other party to retract but may create mitigation issues if that doesn’t happen and you wait too long
insecurity about performance (conduct or words that raise doubts)*
may suspend performance if
- reasonable grounds for insecurity
- demand written assurances and other party doesn’t provide
- commercially reasonable to stop performance
material breach and divisible contract
breacher can recover for substantial performance of a divisible part even though material breach of entire contract
rescission*
A remedy that treats a contract as if it had never been made because the contract was voidable at the time it was made
for rescission to discharge performance, there must be an agreement between the parties and it must be executory (i.e. performance still due from each of the parties).
