Contracts and Sales Flashcards
What transactions are in the common law world?
Contracts for real estate or services
What transactions are in the UCC world?
Contracts for the sale of goods
How do you handle a mixed contract for services and goods?
Rule 1: All or nothing UNLESS it is a divisible contract (can be divided into multiple agreements)
Rule 2: The predominant purpose controls
What is an offer?
A manifestation or willingness to enter into an agreement that creates a power of acceptance in the offeree. Objective test. Must be directed to a specific offeree. (Except for contest or reward offers.)
Essential terms (at common law and UCC)
Common law = parties, subject, price, and quantity
UCC = parties, subject, quantity. BUT not price.
Requirements contract
Contract to supply however many of X a party needs over a certain time period.
Output contract
Contract to sell however many of X a party produces over a certain time period.
Methods for terminating an offer
(1) Expressly revokes by offeror
(2) Constructive revocation: Offeror takes action absolutely inconsistent with continuing ability to offer
(3) Rejection by offeree
(4) Counteroffer by offeree.
(5) Death of oferror
(6) Lapse: reasonable amount of time passes
Types of irrevocable offers
(1) Option contract
(2) Firm offer (UCC = merchant + written + explicit promise + signed by offeror. If no time specified = reasonable time not more than 90 days.)
(3) Offeree starts performance of unilateral offer
(4) Detrimental reliance / promissory estoppel
Acceptance
Objective manifestation of willingness to enter into agreement by the offeree. Must conform to any conditions for acceptance required by offeror. Must have knowledge of the offer.
Two ways to accept: by return agreement (bilateral agreement) or completing performance (unilateral agreement).
Common law = mirror-image rule
UCC = battle of the forms / 2-207
What happens when X receives an offer for sale of goods and then ships the wrong goods?
acceptance + breach
Mailbox rule
An acceptance is valid at the time it is sent.
Does not apply when:
(1) offeree sends something else first (rejection, counteroffer, etc.)
(2) other types of communications (revocation, rejections)
(3) offeree has an option contract
(4) other types of media (email, fax, etc.)
UCC 2-207 / battle of the forms
2-207(1) = acceptance that does not match terms perfectly is still good, unless it is expressly conditional upon additional/different terms
2-207(2) = new terms in acceptance only control if:
(1) both parties are merchants
(2) terms do not materially alter the deal
(3) initial offer did not expressly limit acceptance to its terms
(4) offeror does not object within a reasonable time.
If there is no contract but parties act like there is, contract is only those terms agreed to by both. All other terms drop out and UCC’s gap-fillers control.
Consideration
Parties exchange bargained-for promises involving a legal benefit to the promisor OR a legal detriment to the promisee.
Cannot be inadequate or illusory
Preexisting Duty Rule
Common law = prevents a promise to do something that a party was already obligated to do from serving as consideration. Exception for (1) change in performance, (2) third-party promising to pay, or (3) unforeseen difficulties.
UCC = does not follow preexisting duty rule. Modifications made in GOOD FAITH are valid, even without consideration.
Promissory Estoppel / Reliance
Substitute for consideration. Three elements:
(1) promise is made that party expects to reduce reliance
(2) promisee takes detrimental action in reliance on the promise
(3) injustice can be avoided by enforcing the promise
What is a quasi-contract / contract implied-in-law? What are its elements? (aka “quantum meruit”)
Contract established by law in situations where parties would have contracted if they had the opportunity.
Elements:
(1) πconfers a measurable benefit on ∆
(2) π reasonably expected to get paid
(3) ∆ would be unjustly enriched if not required to pay back the benefit.
Damages usually limited to fair value of the benefit conferred.
Moral Obligation + Subsequent Promise (“Half Theory”). Are these enforceable?
Generally: No obligation to keep promise for a prior-conferred benefit. But some jurisdictions allow a subsequent promise to become binding based upon past consideration.
What are the 7 defenses to contract formation?
1) Misunderstanding
2) Incapacity
3) Mistake
4) Fraud/Misrepresentation/Nondisclosure
5) Duress
6) Illegality
7) Unconscionability
Misunderstanding elements
(1) Parties used terms reasonably open to two or more interpretations
(2) Each side assigns a different meaning to the terms
(3) Neither party knows or should know of the confusion
What counts as an incapacity?
(1) minors (less than 18yo) (except for necessities)
(2) mentally ill
(3) Very intoxicated persons (if the other side knows of the intoxication)
Contract made under incapacity/minor is voidable by the incapacitated person/minor.
Mistake elements (mutual and unilateral)
A belief that is not in accord with a present fact.
Mutual mistake = affects both parties. Both parties can rescind if:
(1) mistake of fact exists at the time the deal is made
(2) mistake relates to a basic assumption of the contract and has a material impact on the deal, AND
(3) Impacted party did not assume the risk of a mistake
Unilateral mistake = only affects one party. Must prove ALL elements of mutual mistake PLUS:
(4a) mistake would have made the contract unconscionable OR
(4b) other side knew of, had reason to know, or caused the mistake
Fraud / misrepresentation elements
Party must show:
(1) misrepresentation of a present fact (not opinion)
(2) that is material OR fraudulent (intentional)
(3) made under circumstances that justify the party’s reliance on the representation
Fraud in execution
Trick someone into signing something that the party doesn’t know is a contract.
Nondisclosure
Generally: no duty to tell the other side about all material facts related to a deal.
Exception: (1) special/fiduciary relationships OR (2) active concealment
Duress
Threat that deprives a party from making meaningful choice.
Includes economic duress and undue influence.
Illegality
Contract for illegal acts are unenforceable. BUT contracts that further an illegal act by providing an act that is not itself illegal WILL be enforced.
Unconscionability (procedural and substantive)
Procedural unconscionability = A defect in the bargaining process itself, such as a hidden term (surprise) or an absence of meaningful choice (no other contracting option);
Substantive unconscionability = A rip-off in some term of the contract.
Some jurisdictions require both procedural and substantive. Others require only one.
Statute of Frauds satisfied if…
(1) writing signed by the one asserting SoF defense that (a) indicates contract was made (b) identifies parties, and (c) contains essential elements of the deal.
OR
(2) full performance of service / partial performance of real state contract + two of: (a) possession, (b) payment, OR (c) improvements to land / partial performance of sale of goods but only to those goods delivered
Statute of Frauds is applicable for…
“M.SOUR”
(1) Mariage
(2) Suretyship (BUT “main purpose exception” if the party taking on the debt of another odes so for that party’s own economic advantage)
(3) One-year (cannot possibly be performed within one year by its terms)
(4) UCC = goods sold for $500 or more
(5) Real property
Real state contract partially performed will satisfy SoF if…
(a) possession
(b) payment, OR
(c) improvements to land
UCC Statute of Frauds exeptions
(1) partial performance of delivery, but only to those goods delivered
(2) Custom-made goods (as soon as maker makes a substantial beginning toward making the goods)
(3) Judicial admissions
(4) Failure to object to a confirming memo within 10 days if BOTH PARTIES are MERCHANTS
Do contract modifications need to fulfill Statute of Frauds?
Only if the modification would independently trigger the SoF.
Parol Evidence Rule (PER) (common law and UCC approach)
If a written contract completely integrates all terms of the agreement, do not look at oral/written statements that came before the deal. Look for a “merger clause.”
Common law = Ask whether the term would “naturally be omitted.”
UCC = presumes the contract is only a partial integration UNLESS parties “certainly would have included the disputed term.”
Can look at prior statements for purpose of a defense or clarify an ambiguous term.
Can look at statements made after. These are modifications.
Types of warranties
(1) express warranty
(2) Implied warranty of merchantability
(3) Implied warranty of fitness for a particular purpose
Implied warranty of merchantability
Goods are fit for ordinary commercial purposes. Only applies to MERCHANTS
Implied warranty of fitness for a particular purpose
Triggered when a buyer relies on a seller’s expertise to select a special type of good that will be used for a special purpose. Warranties it will be good for that special purpose. Applies to all sellers (merchant or otherwise).
Express conditions
Must be strictly satisfied. Usually objective standard of satisfaction (reasonable person would find it satisfied)
Aesthetic-taste conditions = met with subjective test.
Constructive Condition of Exchange (“CCE”)
One party’s performance is conditioned on the other side’s performance.
Common law = CCE need NOT be satisfied perfectly. Only not meant if the breach is material or willful.
UCC = Perfect tender (perfect goods + perfect delivery)
UCC’s perfect tender rule
Perfect goods + perfect delivery
Exception: Installment contracts cannot be rejected or terminated unless there is “substantial impairment” that cannot be cured.
Shipment contract
Seller must: (1) give goods to a common carrier (2) arrange for delivery (3) notify the buyer Buyer bears risk of loss.
Destination contract (“F.O.B.”)
Seller must get the goods to the buyer’s business and notify the buyer.
Seller bears risk of loss.
