Contracts and Sales Flashcards
What is a contract?
A promise or set of promises for the breach of which the law gives remedy or the performance of which the law, in some way, recognizes as a duty. A legally enforceable agreement.
What is an express contract?
Formed by language, oral or written
What is an implied contract?
Formed by conduct
What is a quasi-contract?
Not a contract at all. This is a remedy of last resort when an unenforceable contract results in unjust enrichment.
Bilateral Contract
A contract consisting of the exchange of mutual promises; a promise for a promise. May be accepted in any reasonable way.
Unilateral Contract
The offeror requests performance rather than a promise. Acceptance is by performance.
When does a unilateral contract occur?
- when the offeror clearly and unambiguously indicates that completion of performance is the only manner of acceptance.
- Where there is an offer to the public
“Offer . . . only by”
What is a void contract?
A contract without any legal effect from the beginning. It may not be enforced by either party.
What is a voidable contract?
A contract where one or both parties may elect to avoid, such as by raising a defense such as infancy or mental illness.
What is an unenforceable contract?
An otherwise valid contract that isn’t enforceable due to a defense such as statute of limitations or statute of frauds.
What law do we follow for contracts?
UCC Article II for goods, common law for everything else.
What are goods?
All things movable at the time they are identified as the items to be sold under the contract.
What is a merchant?
One who regularly deals in goods of the kind sold or who otherwise by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved.
What happens if a sale involves both goods and services?
Determine which aspect is dominant and apply the law governing that aspect to the goods adn services.
Exception: If the contract divides payments between goods and services, each follows their normal law.
What is good faith and fair dealing?
Imposed by the UCC.
“Good faith” –> honesty in fact and the observance of reasonable commercial standards
What is mutual assent?
One party must accept the other’s offer.
Is there a contract?
Is there mutual assent?
Was there consideration or some substitute for consideration?
Are there any defenses to the creation of the contract?
What is an offer?
It must create a reasonable exectation in the offeree that the offeror is willing to enter into a contract on the basis of the offered terms.
Did the communication of an offer create a reasonable expectation?
Was there expression of a promise, undertaking, or commitent to enter into a contract? (intent)
Was there certainty and definiteness in the essential terms?
Was there communication of the above to the offeree?
Can an offeror use broad communications media?
Yes, but the court will likely only see it as a solicitation of an offer. So, not an actual offer
Are advertisements offers?
No, they are merely invitations for offers.
What are are the requirements for real estate transactions?
An offer must identify the land and the price terms.
What are special requirements for sale of goods?
The quantity being offered must be certain or capable of being made certain.
What is a Requirements contract?
A buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
What is an Output contract?
A seller promises to sell a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount.
What are the limitations on requirements and output contracts?
No unreasonably disproportionate demands for a quantity in any stated estimate or normal or otherwise comparable prior outputs or requirements.
What do you need to show an employment or services contract?
If the duration is not specified, the contract is terminable at the will of either party.
Sometimes need the nature of the work.
What if there are missing terms of a contract?
It does not prevent the formation if the parties intended to make a contract and there is a reasonably certain basis for giving a remedy.
What happens if there is no price listed?
Except in real estate, that is okay.
How long does a contract last?
If the agreement doesn’t specify the time in which an act is to be performed, the law implies that it is to be performed within a reasonable time.
What if you have vague terms?
No presumption of intent if too vague to be enforceable.
Uncertainty can be cured by part performance that clarifies the vague term or by acceptance of full performance.
What happens if a material term is vague or ambiguous?
It is not an offer under common law or the UCC?
What if you have a future date that is not specified?
If the date is a material term, it is too uncertain to be enforced.
How does an offeree know about an offer?
An offeree must have knowledge of the offer, so the proposal must be communicated to them.
What happens if the offeror terminates the offer?
An offer cannot be accepted after it has been terminated by an act of the party or by operation of law.
What are the terminations by the offeree?
Lapse of Time
Rejection
What is termination by lapse of time?
An offer may be terminated by the offeree’s failure to accept within the time specified by the author, or within a reasonble time if no date is set.
What is termination by express rejection?
A statement by the offeree that tey do not intend to accept the offer.
What is termination by counteroffer as rejection?
A counteroffer is an offer made by the offeree to the offeror that contains the same subject matter as the original offer, but differs in its terms.
A rejection and new offer.
What is conditional acceptance as rejection?
When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer.
What about offers that result from a conditional acceptance being accepted by performance?
A contract is formed by conduct and new terms are not included.
When is a rejection effective?
When it is received by the offeror.
What counts as rejection for an option contract?
A rejection of or a counteroffer to an option contract does not constitute a termination of the offer UNLESS the offeror detrimentally relied on the offeree’s rejection.
What is a recovation of an offer?
The retraction of an offer by an offeror.
What is an indirect revocation of an offer?
If the offer receives:
1. correct information
2. from a reliable source
3. acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make that offer.
When is a revocation effective?
When it is received (or published, if by publication)
When can an offer be revoked?
At will by the offeror
When can an offer not be revoked by the offeror?
- option contract
- Article II Merchant’s Firm Offer
- Foreseeable Reliance
- Beginning performance
What is an option contract?
A distinct contract in which the offeree gives consideration fora promise by the offeror not to revoke an outstanding offer.
What is a merchant’s firm offer?
Under UCC Article II,
1. If a merchant
2. Offers to buy or sell goods in a signed writing
3. the writing gives assurances that it will be held open,
The offer is not revocable for lack of consideration during the time stated, or fora period not to exceed three months
Does a letterhead count as a signature?
Sometimes
What is detrimental reliance in terms of an offer?
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer, and the offeree does so, the offer will be held irrevocable as an option contract for a reasonable length of time
What is beginning performance in response to a true unilateral contract offer?
It becomes irrevocable once the performance has begun. The offeror must give the offeree a reaosnable time to complete the performance.
Does preparation to perform make an offer irrevocable?
No, ubt it may constitute detrimental reliance
Beginning Performance
Once the offeree begins performance, the contract is complete and revocation becomes impossible.
What happens to an offer if either party dies or becomes “insane” ?
The offer is terminated.
What happens to an offer if the proposed contract’s subject matter is destroyed?
The offer is terminated.
What happens if something illegal happens during an offer?
The offer is terminated.
Who may accept an offer?
Only the person to whom an offer is addressed?
Generally cannot be assigned, unless an option contract, in which case it is transferable.
What is acceptance of an offer in a bilateral contract?
It may be accepted either by a promise to perform or by the beginning of performance.
Does silence count as an acceptance?
Only if by prior dealings it would be commercially reasonable.
What is an acceptance of an offer to buy goods for current or prompt shipment?
Acceptance either by a promise to ship or by current or prompt shipment of conforming or nonconforming goods.
When is a unilateral contract accepted?
The contract is not accepted until performance is complete.
What is a notice requirement for acceptance?
The offeree is not required to give the offeror notice that she began the requested performance. However, she does need to tell him when she is done.
What is the exception to the notice requirement for acceptance?
If 1. the offeror waived notice or 2. the offeree’s performance would normally come to the offeror’s attention within a reasonable time.
What happens after a shipment of nonconforming goods?
It is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an acommodation.
The buyer is not required to accept the acommodation goods adn may reject them.
What is the mirror image rule?
Not in use by Article II.
Inclusion of additional or different terms is a rejection and counteroffer.
What does Article II use instead of the mirror image rule?
Battle of the Forms
The inclusion of additional or different terms is an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms.
Whether they become part of the terms depends on whether the parties are merchants.
Contracts involving nonmerchant–Terms of Offer Govern
If any party to the contract is not a merchant, the additional or different terms are considered to be mere proposals to modify the contract that do not become part of the contract unless the offeror expressly agrees.
Contracts between merchants–Additional terms usually included
If both parties are merchants, additional terms in the acceptance will be included unless they
1. materially alter the original terms of the offer
2. expressly limit acceptance to the terms of the offer OR
3. the offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received.
What abut different terms?
Depends on the court. Either treated as additional terms or the “knockout rule” applies, which knocks that term out of the contract.
What is a merchant’s confirmatory memo?
A merchant’s memo confirming an oral agreement that contains different or additional terms is also subject to the battle of the forms provision.
What does it mean to have the moment of mutual assent uncertain?
Where it cannot be determined with certainty which specific communication was the offer and which was the acceptance but the parties both act as though there is a contract, the UCC considers it a binding contract.
What is the mailbox rule?
Acceptance by mail or similar means is effective at the moment of dispatch, UNLESS
1. the offer stipulates that acceptance is not effective until received
2. an option contract is involved
3. the offeree sends a rejection and then sends an acceptance, in which case whichever arrives first is effective.
4. The offeree sends an acceptance and then a rejection, in which case the acceptance is effective unless the rejection arrives first and the offeror detrimentally relies on it.
What is acceptance by unauthorized means?
It may still be effective if it is actually received by the offeror while the offer is still in existence.
What happens if a contract is not formed by parties’ communications?
If they begin to perform as if they formed a contract, a contract is formed.
Auction Contracts
Complete when the auctioneer so announces by the fall of the hammer.
Auction sales are “with reserve” and the auctioneer may withdraw the goods at any time until he announces completion of the sale.
What are the elements of consideration?
- a bargained-for exchange between two parties with
- legal value
When do you have a bargained-for exchange?
When a promise induces the detriment and the detriment induces the promise.
There is no bargain when one party gives a gift to another.
Is an act or forebearance by the promisee a valid form of consideration?
Yes, if it benefits the promisor. THe benefit need not be economic.
Is past or moral consideration allowed?
No. A promise given in exchange for something already done does not satisfy the bargain requirement.
Are there any exceptions to the past or moral consideration bar?
When a past obligation is unenforceable because of a technical defense, the obligation will be enforceable if a new promise is made in writing or is partially performed.
If a past act benefitted the promisor and was performed by the promisee at the promisor’s request or in response to an emergency, a subsequent promise to pay for that act will be enforceable.
Do courts consider the adequacy of consideration?
No, but courts bar things that are devoid of value or are sham considerations.
Even if there is a possibility of value, a mere peppercorn, it is okay.
What is legal detriment in terms of consideration?
If the promisee does something they are not legally obligated to do or refrains from doing soething they have a legal right to do.
What is a legal benefit?
Opposite of a legal detriment. Forbearance or performing of an act that the promisor was not legally entitled to demand or expect.
Is a preexisting legal duty consideration?
No, that is insufficient consideration.
What are the exceptions to the preexisting duty rule?
New or different consideration is promised
The promise is to ratify a voidable obligation
The preexisting duty is owed to a third person rather than to the promisor
There is an honest dispute as to the duty
Unforeseen circumstances are sufficient to discharge a party
Under the modern view, if the modification is fair and equitable in view of circumstances not anticipated.
Can you modify a contract without new consideration?
A good faith agreement modifying a contract subject to the UCC needs no consideration to be binding.
Modification of contracts
Under general contract law, a contract cannot be modified unless the modification is supported by new consideration.
UNLESS
1. the modification is due to circumstances that were unanticipated by the parties when the contract was made
2. it is fair and equitable
Can you discharge debts?
Yes, by accord and satisfaction.
Can you have forebearance to sue?
A promise to refrain from suing on a claim constitutes consideration if the claim is valid or the claimant in good faith believed the claim was valid.
What is the requirement of Mutuality?
Consideration must exist on both sides of a contract.
Is there a right to choose an alternative course?
A promise to choose one of several alternative means of performance is illusory unless every alternative involves legal detriment to the promisor. It will not be illusory if:
1. at least one alternative involves a legal detriment and the power to choose rests with the promisee a third party OR
2. a valuable alternative is actually selected.
Is there any time when consideration is not necessary? (Promissory Estoppel)
Consideration is not necessary if the facts indicate that the promisor should be estopped from not performing it. Such as:
1. The promisor should reasonably expect to induce action or forbearance AND
2. such action or forebearance is in fact induced;
This may be limited as justice requries.
When might an otherwise enforceable contract be unenforceable?
- a defect in capacity
- defense to formation of teh contract
- a defense to enforcement of certain terms exist
Who has a legal incapacity to contract?
Infants
Mental Incapacity
Intoxicated Persons
What is disaffirmance by minors?
A minor may choose to disaffirm a contract at any time before (or shortly after) reaching the age of majority.
Are there exceptions to disaffirmance by minors?
Yes, for student loans, insurance contracts, and agreements not to reveal an employer’s proprietary information.
What are “necessaries” ?
Items necessary for subsistence, health, or education
Minors may disaffirm contracts for these, but will be liable in restititution.
Can a minor affirm upon attaining majority?
Yes, a minor may choose to affirm either by failing to disaffirm within a reasonable time after reaching majority or be express actions.
Is a contract made when a party was mentally incapacitated void?
Not void, voidable.
One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative.
A person who has been appointed a guardian has no ability to contract.
May intoxicated persons enter into a contract?
One who is so intoxicated that they don’t understand the nature and significance of their promise may be held to have made only a voidable promise if the other person had reason to know of teh intoxication.
Is a contract made under duress valid?
No, it is voidable.
What happens if a contract is ambiguous?
If neither party is aware of the ambiguity: no contract unless both parties intended the same meaning.
Both parties aware: no contract unless both parties intended the same meaning
One party is aware: it is a binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous conduct.
What happens if there is a mutual mistake as to existing fact?
The contract may be voidable by the adversely affected party if:
1. the mistake concerns a basic assumption on which the contract is made
2. the mistake has a material effect on the agreed-upon exchange
3. the party seeking avoidance did not assume the risk of the mistake
Is mutual mistake a defense if the party bore the risk?
Mutual mistake is not a defense if the party asserting mistake as a defense bore the risk that the assumption was mistaken.
What about mistakes in value?
Generally not a defense.
What happens if there is a unilateral mistake?
If only one of the parties is mistaken about facts relating to the contract, the mistake will not prevent formation of a contract.
If the non-mistaking party knew or had reason to know of the mistake, the contract is voidable by the mistaken party.
What is mistake by the intermediary?
When there is a mistake in the transmission of an offer or acceptance by an intermediare, the message as transmitted is operative unless the other party knew or should have known of the mistake.
What is fraudulent misrepresentation? (fraud in the inducement)
If a party induces another to enter into a contract by using fraudulent misrepresentation, the contract is voidable by the innocent party if they justifiably relied on the fraudulent misrepresentation.
What is material misrepresentation?
A representation that may be voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and it was material.
1. it would induce a reasonable person to agree
2. the maker knows that for some special reason, it is likely to induce the particular person to agree, even if a reasonable person would not.
What is justified reliance?
A party is not entitled to relief if the reliance was unreasonable under the circumstances.
Can innocent parties rescind agreement and recover damages?
Yes, and may do so affirmatively.
What happens if there is an absence of consideration?
If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, no contract exists
Can a contract be voided because of illegality?
Yes, if the consideration or subject matter of a contract is illegal.
Are there exceptions to a contract being void because of illegality?
- the plaintiff is unaware of the illegality while the defendant knows of the illegality
- the parties are not in pari delicto (one party is not as culpable as the other)
- the illegality is the failure to obtain a license
If it was for an illegal purchase, the contract is voidable by one unaware of the purpose or not facilitating it.
What is unconscionability?
Court’s ability to modify or refuse to enforce an entire contract or a provision
Are risk shifting clauses okay?
No, they are inconspicuous or incomprehensible
