Contracts Basic Flashcards
Define
contract
In short: legally enforceable agreement
In long:
Promise / set of promises
for breach of which law gives remedy
OR
performance of which law recognizes as a duty
Bilateral Contract
promise for a promise
Offer can be accepted in any reasonable way (including beginning performance, but might req. notice of beginning of performance)
Unilateral Contract
Ex: reward offer, or “offer…only by”
promise to pay upon completion of X
Performance begun = offer irrovocable (but not yet accepted so other party not bound to complete performance)
Preparing to perform is not beginning performance, so offer can still be revoked, but can try to use detrimental reliance to recover some.
Act complete = acceptance, contract formed
Void vs. Voidable contracts
Void can never be enforced
Voidable = aggrieved party may elect to enforce a voidable K
Mutual Assent
Offer + Acceptance
Objective Standard = did words / conduct manifest a present intention to enter into a contract?
Is there a valid contract? (3 steps)
- Mutual Assent
- Consideration
- Any defenses to the creation of the contract?
Consideration
Bargained for exchange of something of legal value
Substitutes for Consideration
Promissory Estoppel, detrimental reliance, good faith modification under UCC
3 elements of an offer
1.promise/undertaking/commitment
2. certainly of essential terms
3. communication to offeree
offer: certainty of essential terms
Must ID offeree
RE = id land and price
Goods = quantity
Offer: Missing terms
Goods, price = reasonable at time of delivery
Time = reasonable time
Generally, if parties intended to form K, court will supply reasonable terms at CL and UCC
Offer Vague Terms
Not valid offer if vague terms (reasonable, fair, appropriate, etc.)
Terms to be agreed later too vague if material term
Ways to terminate an offer
- Lapse of Time
- Rejection (incl. counteroffer)
- Revocation (includes indirect info to offeree that a real person would see as revocation)
Option contract
contact to keep offer open (must be supported by consideration)
only terminated at end of option period (unless offeror detrimentally relied on rejection)
-cannot be revoked
rejection does not terminate
-counter offer does not terminate
Merchant’s Firm Offer
no consideration required, IRREVOCABLE for time in offer or reasonable time (either way no longer than 3 months) (BUT if there’s consideration, this is an option K, not a merchant’s firm offer and can be held open as long a parties agreed on)
1)merchant
2) signed writing
3) give assurances offer to buy/sell will be held open
Limitation on offeror’s power to revoke
- option K
-Merhcan’ts firm offer - detrimental reliance (Offeror could reasonably expect that offeree would rely to their detriment and they do so) –> irrevocable for reasonable time
Contract terminated by matter of law
Death / insanity of party
destruction of subject matter
supervening illegality
Define Acceptance
Manifestation of assent to terms of offer (requires knowledge of offer)
Bilateral K Acceptance = any reasonable manner (incl. promise to perform OR beginning performance)
Unilateral K =
How to accept UCC offer to buy goods for prompt/current shipment
- promise to ship (this is the acceptance, can’t later try to accommodate w/ different goods, that would be a breach)
OR
2. current/prompt shipping
Note when acceptance is by shipping non-conforming goods: shipment of non-conforming goods w/ reasonable notice that it’s an accommodation is NOT an acceptance, so there’s no contract and no breach if buyer rejects accommodation
Acceptance with additional terms …. ? BATTLE OF THE FORMS
CL: not acceptance, but rejection and counter offer
UCC: K still formed and terms are:
if there’s a non-merchant: offer terms win
between merchants: terms in unless
- they materially alter original terms (fact question)
-offer expressly limited acceptance to its own terms
-offeror has already or does in reasonable time object to therms
NOTE: also applies to add terms in merchants memo confirming oral agreement
Acceptance with different terms?
CL: no agreement
UCC: agreement, but different terms are either
(1) treated like additional terms
OR
(2) dropped and use UCC as gap filler (knockout rule)
Mailbox Rule and Exceptions
Acceptance is effective upon dispatch
Exceptions:
-offer says effective upon receipt
-option k
-oferee sends and rejection and then an acceptance
-offeree sends acceptance then rejection and rejection arrives first and offeror detrimentally relies on it
Consideration (2 elements)
- bargained for exchange (promise induce detriment and detriment induce promise)
- of legal value (benefit to promisor or detriment to promisee)
“past” consideration
does not satisfy the bargain requirement therefor it’s not consideration
exceptions:
(1) if past promise is unenforceable on a technical defense (like SoL), new promise enforceable if in writing or partially performed
OR
(2) past act was performed at promisor’s request / in response to en emergency, then a subsequent promise to pay for the act will be enforceable
Promise to perform pre-existing legal duty as consideration?
No.
Exceptions:
- new / different consideration
-promise to ratify an otherwise voidable obligation
-preexisting duty owed to 3d party, not promisor
-there is an honest dispute as to the duty
-unforseen circumstances (like would give rise to impracticability); or modern view: modification is fair and equitable in view of unanticipated circumstances
Consideration required for modificaiton
CL: new consideration required
modern view: modification w/o consideration ok if (1) fair and equitable and (2) due to unanticipated circumstances
UCC: can modify w/ good faith agreement of new / different terms (no consideration required)
Illusory Promise
Need consideration on both sides of the contact, therefore no consideration if there’s an illusory promise (where on party is essentially not bound)
Contract Defenses: lack of capacity
Infants
Mental Capacity
Intoxication
Duress / undue influence
Contract Defenses: Absence of mutual assent
- Misunderstanding (ambiguous K language)
If both /neither party knew of ambiguity, no k unless they intended same meaning
If one party aware, binding K based on ignorant party’s reasonable meaning - Mutual mistake (both parties mistaken about fact at time of K formation) Can be voidable by adversely affected party (3 requirements)
- Unilateral Mistake (if non-mistaken party knew/should have known other party didn’t know of mistake, voidable by mistaken party (3 requirements)
- Mistake of intermediary (as transmitted unless other party knew/should have known of mistake)
- Misrepresentation (party can rescind agreement and pursue remedies for breach
–Fraudulent misrep = K voidable by innocent party if they justifiably relied on fraudulent misrepresentation.)
–Material misrep. = K voidable if misrep. was material /
P justifiably relied on it and /
it would induce reasonable person to rely OR maker of misrep. knows this P would rely on that particular. misrep).
Contract Defenses: Public Policy
Illegality
Unconscoinability (usually due to some unfairness in bargaining process)
Oral modifications to written contract
If K as modified falls within SoF, modification must be in writing
CL: allowed, EVEN when express K provision says no
UCC: if the K has a provision that must be modified by signed writing, that will be enforced under UCC, but if one party is non-merchant, requires them to sign that provision
Part Performance in Sale of Goods K, out of SoF when
1) specially manufactured goods
2) goods paid OR accepted
–> if indivisible item is partially paid for, the SoF satisfied for whole item
Exception to SoF
- specialty goods (w/ substantial beginning / commitments for purchase )
- admissions in pleadings in court
- merchants confirmatory memo (if not rejected w/in 10 days)
SOF requirements
One/more writings
1) reasonably identify subject matter
2) indicate K has been make btw parties
3) state essential terms with reasonable certainty
SoF part performance
If part performance takes K out of SOF, aggrieved party may sue on the k for expectation damages (rather than merely in restitution for value of benefit conferred)
Parole Evidence Rule
Fully integrated written agreement cannot be supplemented by evidence of prior/ contempt oral or written agreement if purpose is to vary terms of agreement
UCC and Parole Evidence
UCC Assume all writings are partial integrations and writing may not be contradicted but may be supplemented w/ consistent additional terms (unless merger clause or courts find it was fully integrated; regardless, terms my be explained/supplemented by course dealing/ course perform/ usage of trade
When evidence falls outside of scope of Parole Evidence Rule
- goes to validity issues (formation, condition precedent to K’s effectiveness, consideration paid or not, mistake entitling him to reformation of agreement)
-colatteral agreements to the writing (incl. naturally omitted terms) - goes to interpretation
(not varying terms, but interpreting terms)
-evidene of subsequent modifications
UCC gap filler: price
reasonable at time for delivers
UCC gap filler: place of delivery
seller’s ppb
UCC gap filler: time shipmment/delivery
reasonable
UCC gap filler: time for payment
time and place buyer receives goods
Express warranty
by any seller
by affirmation / promise or model
extremely difficult to disclaim
Implied warranties
Title
fitness for purpose
merchantability
Implied title warranty
free and clear, transfer rightful, no leins/incumberances
any seller
disclaim by specific language or circumstances showing seller does not claim title
Implied warranty of merchantability
merchants sellers only
who usually do these kinds of goods
fit for ordinary purposes
disclaimed by disclaimer mentioning “merchantability” (if written must be conspicuous)
Implied warranty of fitness for a particular purpose
by any seller
who knows buyer is buying or specific purpose
and who knows/should know buyer is relying on seller’s expertise
disclaim if conspicuous written disclaimer (like “as is”)
Buyer’s damages for breach of warranty
diff btw goods tenders and as warranted
title: rescind contract OR revoke acceptance of goods OR sue for damages (usually value of goods b/c buyer now has nothing if true title holder took goods back)
Warranties extend to …?
anyone you’d reasonable forsee getting hurt by goods (buyer, family, guests in home)
Risk of Loss - non conforming goods
risk stays on seller until buyer accepts goods or seller cures (or never in case of buyer’s outright rejection)
(if buyer rightfully revokes acceptance, risk treated as always having been on seller)
Risk of Loss, non-carrier cases
Merchant seller: tender
Non-Merhcant seller: when buyer takes possession
Carrier, (2 kinds) vs non-carrier Cases
Carrier: (payment when buyer assumes risk)
(1) shipment K (risk to buyer when goods go to carrier) (article 2 assumes it’s a shipment K unless clearly not)
(2) destination K (risk to buyer when goods tendered to buyer at destination)
Non-Carrier (payment when goods tendederd to buyer) = parties didn’t intend goods to be moved by a common carrier
FOB CITY = risk to buyer when goods at named city
FAS = on a boat and risk to buyer when goods are on delivered to the dock
Goods destroyed before risk of loss passes to buyer
- if goods identified in K, contract is avoided
2) if goods not identified when k made, seller must prove impracticability
Duty to perform under K
CL: substantial performance
UCC: perfect tender
Promise vs condition
When parties bound in K, they may have to perform immediately (promise) or only subject to another occurrence (condition)
- failure of condition to occur discharges party’s duty under K
Failure of promise is breach giving rise to liability; failure of condition relieves party of obligation to perform
INTERP: look to intent of parties, if depends on third party, likely condition; if unclear, courts go with promise
note: “when…” usually not a condition but just indicating a time for performance if it deals w/ timing and not within control of obligee
Effect of failed condition
K can’t be enforced b/c of failed condition, but party has fully / partially performed —> can usually recover unjust enrichment
Duty rel. to condition
Duty not absolute until condition is performed or legally excused
when condition legally excused?
-wrongful party prevents condition
-waiver/estoppel (party to benefit from condition may waive, no consideration required if ancillary to K)
-Actual Breach
-Anticipatory repudiation / unwillingness to perform
-substantial performance
-imposs / impract/ frustration
Anticipatory
Repudiaton
p. 77
Recission
Parties can discharge duties by recission
Agreement to rescind is itself a binding agreement; k duties must be executory on both sides
-mutual and supported by consideration
-of unilateral K where one party already performed, recission requires (!) new consideration by non-performing party; or PEstop; OR manifest of intent to gift
Novation
p. 86
Impossibility
Objective, from facts arising AFTER k formed, K discharged / each party excused from duties ; either party may sue for recission and receive restitution of goods delivered, payments made, etc.
Ex: death/ incapacity, supervening illegality, subsequent destruction of subject matter of K (won’t discharge building K, but will for remodeling K)
Impracticability
performance extreme/unreasonable b/c something occurred and its non occurrence was basic assumption upon which the K was made (shortage of raw materials, crop failure, war/emgargo)
Frustration of purpose
supervening act, not reasonable foreseen, purpose of K has been completely/ nearly destroyed, both parties understood purpose at time of K formation
Is breach material?
a) benefit received by good guy
b) can good guy adequately be compensated
c) extent of bad guy’s performance/likelhood they will perform remainder
d) negligent /willful behavior of bad guy
hardship to bad guy
Minor Breach vs. Material Breach effects
Minor: obligee gained substantial benefit of bargain, therefore aggrieved party not relieved of duty to perform (but right to damages for minor breach) (late to perform usually minor)
material: obligee did not receive substantial benefit of bargain (Good guy discharged of any further obligations and may immediately sue for damages / other remedies for breach)
Minor Breach + anticipatory reputation =
Material Breach
Perfect Tender rule, buyer’s options if it’s not perfect
1) accept all
2) reject all
3) accept part and reject part (commercial units)
If buyer accepts imperfect goods
Can accept by indicating to seller that goods conform
can acknowledge imperfections and accept anyway
fail to reject within reasonable time / fail to notify of rejection
any act inconsistent with seller’s ownership
After buyer accepts imperfect goods
1) usually must pay price minus damages from seller’s breach
2) sometimes can revoke acceptance if
defect substantially impairs value & accepted w/ reasonable belief would be cured and it has not been OR accepted goods b/c hard to inspect and seller said they conformed
Revocation of accceptance of imperfect goods requires
1)reasonable time after discovers/should have discovered defects
2) before substantial change (not do to defect) occurs in goods
Seller’s right to cure imperfect goods delivery
can cure w/in original K term and if give reasonable notice of intent to cure
can cure beyond original K term if buyer rejects goods seller reasonably believed would be acceptable (even though imperfect) and seller tells buyer of intent to cure (now seller gets reasonable time)
Rule for rejecting in imperfect goods under installment K
Can reject installment if it substantially impairs value of installment and cannot be cured
whole K breach ONLY if nonconformity substantially impairs the value of entire K
Non Monetary K remedies
Specific Performance,
Defense against specific performance action: Equitable Defenses (Laches - too much time; Unclean hands; Sale to BFP)
Specific Performance
Usually reserved for land (all land unique) and rare/antique goods
never for services but may enjoin person from competing as opposed to compelling them to act
Nonmonetary buyer’s UCC remedies
- Cancellation (cancel k when reject non-conforming goods)
-Replevy (sieze goods)
–goods must be identified in K, buyer has paid at least partially
–only ok if (1) seller involvent w/in 10 days of buyer’s first payment; OR (2) goods for personal, family or household purchases OR (3) buyer can’t cover after reasonable try (but not if can get same goods at higher price)
-Specific performance of unique goods even if goods not yet identified
Nonmonetary Seller’s UCC remedies
Withold goods, recover goods , demand assurances (if reasonable reasons for insecurity, demand must be in writing) (may suspend while waiting and may treat k as repudiated if no reassurance w/in 30 days)
Compensatory Damages
Can’t be too speculative
Expectation, Reliance, Incidental, consequential
Normal measure is expectant damages: put non breaching party in position they would be in if promise had been performed
-usually sufficient damages to buy a substitute performance (expectation damages/benefit of bargain)
Reliance Damages
If expectation damages too speculative, aggrieved party can elect for this. give p back cost of performance, put them in position like K had never been made
Incidental damages
incurred as a result of the breach, foreseeability doesn’t matter here!
Consequential Damages
arise b/c of non-breaching party’s particular circumstances; only to extent reasonable person would have foreseen damages a probably result of breach
- breaching party must have known or had reason to know of special circumstances
-in sale of goods only buyers can get consequential damages (never sellers)
Punitive Damages
generally a no no in K cases
Liquidated Damages
Liq. Damages clause enforceable only if
(1) damages for breach difficult to estimate or ascertain at time of K formation
AND
(2) amount is reasonable forecast of compensatory damages in case of breach
Won’t enforce if it seems like a penalty clause, won’t enforce single lump sum regardless of severity of breach; can recover under valid liq. damages clause even if breach caused no actual damages
UCC total breach, Damages
If seller does not deliver:
Benefit of Bargain OR Cover
PLUS (incident +foreseeable conseq. - expenses saved)
If buyer doesn’t accept
Benefit of bargain OR Resale OR Lost profit (only for lost volume seller) OR Action for Price (only if buyer has goods or seller can’t resell at reasonable price)
PLUS (incidental damages - expenses saved)
If there’s a partially performed contract and BREACHING party is trying to recover
Look at
Substantinal Performance
Divisiblity
Restitution (in that order)
When breaching party is suing
Damages are usually (reasonable value of services provided) - (damages to non-breaching party)
Golden rule of K damages
Out non-breaching party in position they would have been in had the contract been performed
