Contracts and Sales Flashcards
UCC applies to
all contracts for the sale of goods
special rules govern transaction between merchants
Common law applies to
any contract not governed by UCC
services
Is there a valid contract
- offer
- acceptance
- consideration
valid offer
- manifestation of a present intent to contract demonstrated by a promise, undertaking, or commitment
- communicated to an identified offeree, and
- definite and certain terms
Has the offer been terminated?
- lapse of time
- revocation
- rejection
- termination by operation of law
lapse of time terminating offer
must accept within specified time period or, if none, within reasonable time
revocation terminating offer
words or conduct of the offeror terminating the offer
- revocation is effective when received by offeree
- irrevocable if:
- merchant’s firm offer
- option contract (offeree gave consideration)
- detrimental reliance
rejection terminating offer
words or conduct of the offeree rejecting the offer
- rejection effective when received by offeror
- counteroffer acts a rejection
termination of offer by operation of law
- destruction of subject matter of the contract
- supervening illegality of subject matter of contract
- death or insanity of either party
unequivocal acceptance
- common law = acceptance of each and every term of the offer (mirror image rule)
- UCC = an acceptance that adds terms to the offer is valid
- between merchants, the additional terms become part of the contract unless they materially alter the contract, the offeror objects, or the offer is limited to its term (battle of the forms)
methods of acceptance
- UCC = reasonable mean
- Unilateral contract = performance
- Bilateral contract = promise or performance
Mailbox rule
acceptance effective upon dispatch
-limitation = offeror opts out; rejection sent first
consideration
- bargained for exchanges (not a gifts) and
2. detriment to promisee or legal benefit to promisor (past consideration generally invalid “preexisting duty rule)
exceptions to preexisting duty rule
- written promise to pay time - barred debt
- new or different consideration promised
- promise ratifying a voidable obligation (ex: minor ratifying upon reaching age of majority)
- compromise of honest dispute
- unforeseen circumstances make modification fair and equitable OR rise to the level of impracticability
- good faith modification under UCC
substitutes for consideration
- promissory estoppel
2. detrimental reliance
Defenses to formation or enforcement
- mistake
- fraud and misrepresentation
3, illegality - incapacity
- statute of frauds
- unconscionability
Mistake
- unilateral mistake = contract is voidable if not mistaken party knew or should have shown mistake
- mutual mistake = contract is voidable by adversely affected party if:
- mistake concerns basic assumption on which contract was made
- mistake had material effect
- party seeking avoidance did not assume risk
- ambiguous terms = one party aware of ambiguity = contract; neither party or both parties aware of ambiguity = no contract
what falls under incapacity as defense to contract
infancy, mental incapacity, intoxication, duress, and undue influence
statute of frauds
certain contracts must be in writing, signed by the party to be charged (MY LEGS)
- marriage
- year = if cannot be performed in one year
- land (leases, easements, fixtures, mineral rights, mortgages)
- executors and administrators = promises to pay estate debts
- goods = when price is $500 or more (except: specially manufactured goods and goods accepted or paid for)
- suretyship = promise to answer for another’s debt
Parol Evidence rule
when parties intend that a writing is the final expression of their bargain,no prior (oral or written) or contemporaneous expressions are admissible to vary the terms of the writing
UCC gap fillers
if missing article 2 provides:
- price = reasonable at time of delivery
- place of delivery = seller’s business
- time of shipment = reasonable
- time for payment = receipt of goods
- assortment = buyer’s option
delivery terms and risk of loss under UCC
1.noncarrier cases:
-merchant seller = risk passes to buyer upon taking
physical possession
-nonmerchant seller = risk passes upon tender of
delivery
2. carrier cases:
-shipment = risk passes on delivery to carrier
-destination = risk passes on tender at destination
-FOB = risk passes on delivery to FOB location
Types of warranties in sales of goods
types = title, against infringement, merchantability,fitness, express
- implied warranty of merchantability(goods are fit for ordinary purpose) implied in every contract by merchant of goods of kind sold
- implied warranty of fitness for particular purpose implied whenever any seller has reason to know particular purpose for which goods to be used and that buyer is relying on seller’s skill and judgment to select goods, and buyer does in fact rely
warranties in sales of goods disclaimers
- title = specific language or circumstances putting buyer on notice that seller is not claiming title
- merchantability (mention merchantability and if in writing must be conspicuous)
- fitness for a particular purpose = only by conspicuous writing or general disclaimer (as is)
- express = disclaimer usually not given
Modification of terms under common law
- under general contract law, additional consideration needed
- modern view permits modification without consideration if due to circumstances that were unanticipated by the parties when the contract was made and it is fair and equitable
- written contract can be modified orally even if contrary provision
modification of terms under UCC
- no consideration needed so long as in good faith
- must be in writing if, as modified, contract is for $500 ormore
- gives effect to provisions prohibiting oral modification
has performance been excused or discharged by the condition (precedent, concurrent, or subsequent) being excused?
- hindrance of failure to cooperate
- breach of contract
- anticipatory repudiation
- prospective inability or unwillingness to perform
- substantial performance
- divisibility of contract
- waiver or estoppel
has performance been excused or discharged by the absolute duty being discharged?
- performance or tender of performance
- occurrence of condition subsequent
- illegality of subject matter after contract was made
- impossibility, impracticability, or frustration of purpose
- rescission of contract
- modification of contract
- novation or substituted contract (replacing party or contract)
- accord and satisfaction
common law breach
- minor breach = obligee gains the substantial benefit of bargain so aggrieved party must perform, but right to damages
- major breach = obligee does not gain substantial benefit so no duty to perform, immediate right to damages and other remedies
UCC breach
perfect tender rule = if goods or delivery fail to conform to contract in any way, buyer generally may reject all, accept all, or accept in part and reject in part..
Remedies for breach
- specific performance
- damages
- restitution
- rescission and reformation
specific performance
if damages in inadequate, court may order breaching party to perform
compensatory damages
- expectation damages (“benefit of the bargain”)
- consequential damages available only if reasonably foreseeable
liquidated damages if
- actual damages difficult to calculate at the time of contracting
- amount is reasonable forecast of the likely damages
damages in UCC contract for goods - buyer
- cover = difference between contract price and cost of replacement goods
- difference between contract price and market price
- warranty damages = if accepted nonconforming goods
- consequential damages = if seller knew of buyer’s needs
damages in UCC contract for goods - seller
- difference between contract price and resale price
- difference between contract price and market price
- lost profits
damages for land sale contracts
difference between the contract price and fair market value
employment contract damages
- employer breach = full contract price
2. employee breach = cost to replace employee
construction contract damages for breach by owner
- before construction = builder’s prospective profits
- during construction = contact price minus the cost of completion
- after completion = full contract price plus interest
construction contract damages for breach by builder
- before construction = cost of completion plus compensation for delay
- late completion = value of lost use
avoidable damages
nonbreaching party has duty to mitigate
restitution
prevents unjust enrichment - measure is value of benefit conferred
recission
contract voidable/rescinded if;
- mutual mistake of material fact,
- unilateral mistake that other party knew or should have known or
- extreme hardship,
- misrepresentation of material factor, or
- duress,
- undue influence,
- illegality,
- incapacity, or
- failure of consideration
reformation
writing changed to conform to parties’ original intent if mutual mistake
unilateral mistake and party knows of it and does not disclose
misrepresentation
third party beneficiaries rights/responsibilities
- only intended beneficiaries have rights under contract
- vesting of third party’s rights
- promisor can raise against the third party any defenses he could raise against promisee
- third party beneficiary v. promisee if promisor fails to perform
- third party beneficiary may sue both the promisor and promisee but may obtain only one satisfaction
third party’s rights are vested if her
- manifested assent
- brought suit to enforce the promise or
- materially changed position in justifiable reliance
donee beneficiary rights
may not sue promisee unless detrimental reliance
creditor beneficiary rights
may sue promisee on underlying obligation
Assignment of rights - transfer of rights under contract
- all contract rights are assignable unless assign,ent materially alters the obligor’s duty or risk or it is prohibited by law
- revocability - assignments for value are irrevocable (includes preexisting debts)
- assignor’s warranty liability to assigness
- successive assignments of same right
assignor impliedly warrants:
- he has made no prior assignment of right
- the right is not subject to limitations or defenses other than those disclosed or apparent
- he will do nothing to defeat or impair the right
successive assignments of same right
- revocable assignments = subsequent assignee prevails
- irrevocable assignment = first assignee has priority
duties that cannot be delegated
- those involving personal judgment or skill
- those involving special trust in delegator
- those restricted by contract
- those the performance of which by a delegate materially changes the obligee’s expectancy
liability of parties in delegation of duties
- delegator remains liable
- delegate liable if he assumes the duty
- assignment of “contract” or “rights under the contract” construed to include delegation and assumption of duties
