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Contracts - MBE Flashcards

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1
Q

*** Sale of Goods Contracts

A
  • UCC Article 2 governs all sale of goods contracts
  • Goods = all things movable at the time of identification to the contract (except money/currency)
  • But, Common Law principles continue to apply, UNLESS the UCC specifically displaces them.
  • A sale of goods contract may be made in any manner sufficient to show agreement.
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2
Q

** UCC vs. Common Law

A
  • UCC Art. 2 –> applies to sale of goods contracts.
  • Common law –> applies to all other contracts
  • Mixed Contracts –> The predominant purpose of the contract determines which law governs.
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3
Q

*** Requirements to Form a Valid Contract

A

Elements:

(1) mutual assent (offer and acceptance),
(2) consideration, AND
(3) no defenses to formation.

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4
Q

***Mutual Assent

A

Requires:

(1) an OFFER by one party, AND
(2) ACCEPTANCE of that offer by another party.

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5
Q

*** OFFER

A

A manifestation of intent to enter into a contract with definite or reasonably certain terms, communicated to an identified offeree.

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6
Q

*** Termination

A
  • Offers can be terminated before acceptance by:
    (a) rejection or counter-offer,
    (b) lapse of time,
    (c) revocation, OR
    (d) death/incapacity.
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7
Q

*** Revocation

A
  • An offer may be revoked at any time before acceptance through unambiguous words or conduct indicating an unwillingness or inability to contract.
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8
Q

*** Indirect revocation when:

A

(1) offeror takes definite action inconsistent with entering into a proposed contract, AND
(2) offeree acquires reliable info to that effect.

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9
Q

*** Irrevocable Offers

A
  • Option contracts - if consideration is given to keep an offer open.
  • Merchant’s firm offer - offer by merchant, in a signed writing, stating offer will be held open with max time up to 3 months, separately signed by offeror.
  • Offer was relied on to the offeree’s detriment
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10
Q

*** Acceptance - manifestation of assent to the terms of the offer

A
  • PERFORMANCE may be adequate.
      • Bilateral contracts - start of performance manifests acceptance.
      • Unilateral contracts - only makes the offer irrevocable (acceptance only when completed).
  • REJECTION - a manifestation of intent not to accept an offer.
      • offer is terminated upon receipt by offeror.
      • cannot accept an offer after it is rejected.
  • COUNTEROFFERS - both a rejection and new offer.
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11
Q

*** Timing of Acceptance/Revocation and Mailbox Rule

A
  • Acceptance –> offer is accepted when sent or communicated.
  • Revocation –> offer is revoked when received by the offeree. Cannot revoke an offer after it’s accepted.
  • Mailbox Rule:
    - Acceptance sent by mail is deemed to be accepted once placed in the mail (does not apply to option deadlines).
    - Revocation sent by mail is deemed effective when received by the offeree.
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12
Q

** Battle of the Forms

A

Mirror Image Rule (CL) - Acceptance must exactly mirror the offer, any variations constitute a counteroffer.

UCC Exception - Acceptance DOES NOT have to mirror the offer.

BUT, different or additional terms are included only if:

1) Both parties are merchants;
2) The term is not a material change;
3) Offer does not expressly limit acceptance to the exact offer; AND
4) No objection was made within a reasonable time.

*material change = likely to cause hardship/surprise (i.e.. disclaimer of warranties or arbitration clause).
4)

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13
Q

**Implied-in-Fact Contracts

A

A contract is created by conduct if:

1) The conduct is intentional, AND
2) Each party knows (has reason to know) the other party will interpret the conduct as an agreement.

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14
Q

**Indefiniteness/Absence of Terms

A
  • If terms of an agreement are not certain (cannot be ascertained to a reasonable degree of certainty) then it’s NOT enforceable.
  • Indefinite Duration - contract is generally invalid.
  • UCC (sale of goods) –> if both parties are merchants the only essential term is quantity
    - If no agreement on price, a reasonable price term will be supplied under the UCC.
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15
Q

***Consideration

A

Bargained for exchange of any act or forbearance that benefits the promisor or causes detriment to the promisee.

  • Past/Moral Consideration –> is not sufficient
  • Merchant’s Firm Offer –> may be enforced without consideration.
  • Illusory Promises –> are invalid, occurs when one party has no obligation to perform.
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16
Q

***Exceptions to Consideration Requirement (Rest. 2nd).

A
  • Material Rule - a promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice.
    - BUT, not applied when: (a) conferred as a gift; or (b) value of the promise is disproportional to the benefit conferred.
  • Promissory Estoppel - applies when:
    (1) a party reasonably and foreseeably relied to his detriment on other party’s promise,
    (2) the promisor reasonably expected a change of position in reliance of the promise, AND
    (3) it’s necessary to avoid injustice.
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17
Q

***Modification of Contracts

A

Pre-existing Duty Rule - Under the common law, past performance or a pre-existing duty is NOT adequate consideration:
- Exceptions:
(a) an addition or change in
performance; OR
(b) a fair and equitable modification
due to severe unanticipated
circumstances and contract isn’t fully
performed by either party.

UCC Exception - No consideration is required for contract modifications made in good faith
- But must have a writing if
(a) it falls within the Statute of Frauds;
OR
(b) the original contract states that
modifications must be made in
writing.

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18
Q

**Defenses of Enforceability

A
  • Incapacity
  • Duress
  • Undue Influence
  • Mistake
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19
Q

**Incapacity - must have capacity in order to enter into a contract.

      - Lack of Capacity
       (a) minors - persons under 18 years old, or
      (b) lack of mental capacity - person 
      cannot understand the meaning and 
      effect of a contract.
      BUT, minors are bound for contracts for 
      necessities (food, shelter, clothing)
  • Contract is voidable by the person who lacked capacity.
A

**Duress - 2 types:

  • Physical Compulsion - contract is void
    Occurs if: a person physically compels another person to agree to a contract (i.e. physically forcing someone to sign or by gun point).
- Economic Duress - contract is voidable 
  Occurs when: 
1) an improper threat is made
2) that induces a party,
3) who has no reasonable alternative
4) to enter into a contract.

*A mere threat to breach a contract (without more) is generally insufficient.

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20
Q

**Undue Influence - Requires:

A

1) Unfair persuasion of a person
2) Who is either:
a) under the domination of a person
exercising influence; OR
b) justified in assuming the other person
will act in their interest/welfare because
of the relationship between them (i.e.
family)

*Contract is generally voidable by the victim.

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21
Q

**Mistake - 2 Types

A

Mutual Mistake

AND

Unilateral Mistake

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22
Q

**Mutual Mistake

A

Mutual Mistake - contract is voidable (may be rescinded/reformed)
- Elements:
(1) both parties are mistaken as to a
basic assumption,
(2) the mistake is material, AND
(3) the person asserting the mistake did
not bear the risk of the mistake.

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23
Q

**Unilateral Mistake

A
  • Generally NOT a valid defense

Elements:

(1) a mistake by one party,
(2) that is unknown to the other party,
(3) concerning a basic assumption,
(4) that has a material effect.

BUT, a contract is voidable by the mistaken party if:
(a) one party knew or had reason to believe of the mistake;
OR
(b) the mistake makes the contract unconscionable.

  • A mistake as to price/value is NOT considered material.
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24
Q

**Misrepresentation

A

Contract is voidable by the injured party.

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25
Q

**Fraudulent Misrepresentation

A
  • Occurs when:
    (1) D knowingly,
    (2) made a false representation,
    (3) of material fact, AND
    (4) the other party reasonably relies on the misrepresentation to his detriment.
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26
Q

**Non-Fraudulent Misrepresenation

A

Occurs when:

(1) a party/agent,
(2) makes a statement of material fact,
(3) that is false (no wrongdoing required),
(4) inducing a contract, AND
(5) the other party reasonably relied on the misrepresentation to his detriment.

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27
Q

**Concealment

A

An affirmative act intended to keep another person from learning a fact.
- Concealment is deemed a misrepresentation.

BUT, there is NO DUTY TO DISCLOSE UNLESS:

a) a fiduciary relationship exists;
b) it’s necessary to correct an earlier mistake;
c) Active concealment occurs; OR
d) A seller of real property knows material facts that affect the value of the property (that buyer is unaware of and cannot reasonably discover).

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28
Q

**Illegality and Public Policy

A

Courts will NOT enforce contracts that are illegal or contrary to public policy.

  • Contract is void if the illegality existed at the time of contract formation
  • Performance is discharged if the contract subsequently became illegal
  • A contract with an illegal purpose is voidable by the party who did not know of the illegal purpose.
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29
Q

**Unconscionability

A

Occurs when the contract/term shocks the conscious of the court.

Usually need both Procedural unconscionability and Substantive unconscionability.

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30
Q

**Procedural Unconscionability

A
  • One party has a superior bargaining position over the other party and uses that power to their advantage.
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31
Q

**Substantive Unconscionability

A
  • Contract contains terms that are obviosly unfair and one-sided in favor of the party with the superior bargaining power
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32
Q

If unconscionable, the court may…

A

a) enforce the contract without the unconscionable term; OR

b) limit the application of the term.

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33
Q

***Statue of Frauds

A
  • Contract is not valid unless in a writing signed by the party to be charged

Writing Requirement
Writing must:
(1) be signed by the party to be charged;
(2) reasonably identify the subject matter,
(3) indicate a contract was made, AND
(4) state the essential terms.

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34
Q

***Contracts subject to Statute of Frauds

A

1) Marriage Contracts
2) Suretyship - a promise to pay the debt of another.
Main purpose exception –> no writing is required if the main purpose was to benefit the surety himself.
3) Contracts that cannot be fully performed within 1 year
4) Sale of real property or creating an interest in land
5) Promise to pay an estate’s debt from personal funds of the Executor or Administrator
6) Sale of goods for $500 or more (contract must contain the parties, quantity, and nature of goods).
Exceptions
i. Merchant’s Confirmatory
Memorandum - contract between two
merchants, a writing signed only by
the party enforcing it, and other party
did not object promptly.
ii. Goods Accepted or Paid For - but
only applies for those goods, not the
whole contract.
iii. Custom Made Goods - seller made
substantial start AND the goods are
not suitable for sale in the ordinary
course of seller’s business.
iv. Admission During a Judicial
Proceeding.

35
Q

**Parol Evidence Rule

A
  • A party CANNOT introduce a prior or contemporaneous agreement (oral/written) that contradicts a later written contract.

Exceptions -

1) To correct a clerical error or typo.
2) To establish a defense against formation.
3) To interpret vague or ambigous terms (but courts will interpret using the Plain Meaning Rule)
4) To supplement a partially integrated writing

36
Q

**Partially Integrated Writing

A
  • The writing DOES NOT contain a complete statement of all the terms.
    - Proof is allowed if it does not
    contradict the writing.
37
Q

Fully Integrated Writing

A
  • A complete and exclusive statement of terms, discharges prior agreements.
    - Merger clause is evidence that the
    writing is complete on its face (fully
    integrated).

The Parol Evidence Rule DOES NOT apply to subsequent agreements.

38
Q

**Condition Precedent

A

Makes performance conditional upon the completion of the condition.

BUT, the condition is excused when:

 a) the protected party FAILS TO MAKE A GOOD FAITH EFFORT to satisfy the condition; OR
 b) WAIVER (voluntarily giving up protection) - but can retract the waiver if the other party has not relied on it.
39
Q

**Obligation of Good Faith and Fair Dealing

A

Every contract contains an implied obligation of good faith and fair dealing to act honestly and fairly.
- UCC -> Requires:
(1) honest in fact, AND
(2) observance of reasonable
commercial standards of fair
dealing.

40
Q

**Impossibility, Impracticability and Frustration of Purpose

A

Types of performance discharge

41
Q

**Impossibility

A

Performance is discharged when it’s objectively impossible to perform because of:

a) death or incapacity of a person necessary to effectuate the contract;
b) unanticipated destruction of the subject matter of the contract; OR
c) a new, unanticipated law/regulation making performance extremely and unreasonably difficult/expensive.

*Rest. 2nd of Contracts replaced the term “Impossibility” with “Impracticability.

42
Q

**Impracticability

A

Performance is discharged when:

1) an event occurs after contract formation.
2) that is unanticipated by both parties,
3) making performance extremely and unreasonably difficult/expensive.

43
Q

** Frustration of Purpose

A

Discharges performance when the purpose of the contract no longer exists.

Occurs when:

1) a party’s principal purpose is substantially frustrated.
2) by an unforeseeable superseding event outside their control, AND
3) both parties knew the purpose at the time of formation.

44
Q

**Material Breach - Substantial Performance Doctrine

A

Occurs when a party does not render substantial performance.
- A material breach excuses the non-breaching party’s performance.

To determine if the breach is material, courts analyze:

1) Extent of performance;
2) Adequacy of compensation for loss to the non-breaching party;
3) Hardship;
4) Likelihood the breaching party will cure; AND
5) Whether the breach was intentional.

45
Q

**Minor Breach

A

DOES NOT excuse performance.

  • But, the non-breaching party may bring a separate action for damages resulting from the breach.
46
Q

**Divisble Performance

A
  • Treated as multiple contracts.

- Performance of each part entitles a party to payment for that part.

47
Q

**UCC Perfect Tender Rule

A

Seller must deliver conforming goods.

  • The smallest non-conformity is a breach, and buyer may reject all or portion of the goods.
  • A rejection of goods must be made within a reasonable time.
48
Q

**Right to Cure

A seller has a right to cure when:

A

a) Time for performance has not yet expired; OR
b) The seller will have future reasonable time to cure if seller had reasonable grounds that substitute goods would be accepted (i.e. same type of non-conforming goods had been accepted by the buyer in the past).

49
Q

**Instalment Contract

A
  • May only be cancelled when an instalment is so defective that it SUBSTANTIALLY IMPAIRS the value of the ENTIRE CONTRACT.
  • Buyer can reject an instalment ONLY IF the non-conformity substantially impairs that instalment and the time to cure has past.
50
Q

***Rejection of Goods (UCC)

A
  • If a buyer fails to reject goods after a reasonable opportunity to inspect the goods, the goods are deemed accepted.
51
Q

***Revocation of Acceptance (UCC)

A

After acceptance, a buyer may later revoke that acceptance of goods ONLY IF:

1) the non-conformity SUBSTANTIALLY IMPAIRS the value of the goods; and
2) the defect was DIFFICULT TO DISCOVER (a latent defect) OR the buyer had a REASONABLE ASSUMPTION THE DEFECT WOULD BE CURED.

52
Q

***Revocation of acceptance MUST occur…

UCC

A

…within a reasonable time after the buyer discovers or should have discovered the nonconformity.

  • Not effective until buyer notifies the seller
  • Must occur before there is any substantial change in the goods (not caused by their own defects).
53
Q

***Anticipatory Repudiation (UCC)

A

Occurs when a party unequivocally communicates that they are unable or unwilling to perform under the contract.

If occurs, the non-breaching party may:
a) treat the contract as repudiated and sue for damages before the time of performance is due;
b) treat the contract as discharged;
c) wait until performance is due and then sue;
OR
d) urge the other party to perform.

A party can RETRACT ITS REPUDIATION and restore the contract UNLESS the non-breaching party has:

a) cancelled;
b) Materially changed its position; OR
c) Indicated that they consider the repudiation final.

54
Q

***Demand for Adequate Assurances (UCC)

A

If there are reasonable grounds for being insecure about performance, a party may make a written require for adequate assurances from the other party that it will perform.

  • If the other party DOES NOT give assurances after asked to do so, the requesting party may treat that as an anticipatory repudiation.
55
Q

**Accord (UCC)

A

An executory contract between the parties promising to relieve a party of their contractual obligations in return for a specific act.

56
Q

**Satisfaction (UCC)

A

Upon satisfaction of the accord (the new act),the party is excused from further performance under the original contract.

If the party fails to satisfy the accord, the other party may sue either under:

a) the original contract; OR
b) the accord terms.

57
Q

** Express Warranty (UCC Art. 2)

A

Seller is liable for breach of an express warranty

- CANNOT be disclaimed by seller

58
Q

**An express warranty is created when:

UCC Art. 2

A

1) Seller makes an affirmation of fact, promise, description, or provides a sample,
2) Relating to the goods, AND
3) That becomes part of the basis of the bargain.

No intent is needed to create an express warranty or that seller use the words “warranty” or “guarantee”.
- An opinion DOES NOT create an express warranty.

59
Q

**Implied Warranty of Merchantability

UCC Art. 2

A

All goods sold by a merchant (dealing in goods of the kind) must be FIT FOR THEIR ORDINARY PURPOSE.

  • Disclaimer warranty –> Must do so expressly in a conspicuous writing (i.e. “as is” or “with all faults”).
60
Q

**Implied Warranty of Fitness for a Particular Purpose

UCC Art. 2

A

Apples when:

1) Seller knows (or has reason to know) of the buyer’s particular purpose for which the goods are required; AND
2) Buyer relies on the seller’s skill or judgement to select or furnish suitable goods.

May be Disclaimed by:
a) a conspicuous writing; OR
b) waiver by the buyer - if defects can be
discovered by a reasonable inspection.

61
Q

***Warranty of Title

UCC Art. 2

A

Warrant that title:

1) Shall be good/rightful; AND
2) is free from any security interests, liens, or encumbrances.

  • May be expressly disclaimed by specific language or circumstances.
62
Q

**Limiting Damages for Breach of Warranty

UCC Art. 2

A

Is ALLOWED, so long as not unconscionable at the time the contract was formed.

  • Exception #1 –> Limiting a buyer’s remedy for personal injuries for consumer goods is presumed to be unconscionable.
  • Exception #2 –> The limited remedy fails of its essential purpose.
63
Q

**Third-Party Beneficiaries & Enforcement of Rights

A

Generally, a party who is not in privity of contract with another party CANNOT assert a claim for breach of contract.

  • HOWEVER, a third-party beneficiary has the same rights as those in privity, and can sue for breach of contract.
64
Q

**Intended Third-Party Beneficiary

A

Not a party to the contract, but has rights because the contracting parties’ performance were intended to benefit the identified third-party.

65
Q

**Incidental Third-Party Beneficiary

A

Someone who just happens to benefit from the contract, but has NO legal rights.

66
Q

**Enforcement of Rights

A

A third party beneficiary may enforce rights under a contract ONLY IF the rights have vested.

  • Vesting occurs when the third party:
    (a) manifests assent to the promise in the
    contract;
    (b) detrimentally relied; OR
    (c) sues to enforce.
  • Once vested, the contract CANNOT be changed or modified without consent of the third-party.
67
Q

**Assignment of Rights

A

Rights and benefits may be transferred to a third-party if:

1) Assignor manifests his intent to transfer; AND
2) Assignee assents (approves) to the assignment.

Consideration is NOT required for an assignment.

  • If consideration is given, the assignment is irrevocable.
  • Gratuitous assignments may be revoked.
68
Q

**Limitations - An assignment is valid UNLESS:

A

a) It MATERIALLY ALTERS WHAT IS EXPECTED
i. changes the duty of obligor,
ii. increases the burden/risk imposed on
obligor,
iii. materially impairs obligor’s chance of
obtaining return performance, or
iv. materially reduces the value of return
performance;
b) It’s PROHIBITED BY LAW OR PUBLIC POLICY, OR
c) It’s PRECLUDED BY CONTRACT - (i) prohibitions - assignment is valid & assignor is liable for damages; (ii) invalidations - assignment is void.

69
Q

** Rights of Assignee & Assignor

A
  • Assignee may sue obligor for non-performance.
  • Any defense against assignor may be used against assignee.
  • Assignee may sue assignor for wrongful revocation of an assignment OR for breach of an implied warranty
70
Q

**Multiple Assignments

A
  • If Gratuitous Assignment –> Last assignee prevails.
  • If for Consideration –> First assignee prevails UNLESS the later assignee (1) has no notice, AND (2) is the first to obtain payment/indicia of ownership.
71
Q

**Delegation of Duties

A

All contract duties are delegable UNLESS:

a) the contract prohibits delegation or assignment;
b) delegation is against public policy;
c) it’s personal service contract that calls for exercise of personal skill/discretion; OR
d) the delegation materially alters the expectancy of the obligee.

*An assignment generally includes a delegation of the unperformed duties.

The delegating/assignment party remains liable for non-performance unless a novation (replacement of one party) occurs.

72
Q

***Expectation Damages

A
  • Arise directly from the breach, and are meant to put the non-breaching party in the SAME POSITION IT WOULD HAVE BEEN IN BUT FOR THE BREACH.
        To recover, damages must be:
    (1) caused by D (actual cause); 
    (2) foreseeable (proximate cause); 
    (3) certain (not speculative); 
    AND 
    (4) unavoidable (reasonable steps were 
         taken to mitigate damages.
73
Q

**Consequential Damages

A

Arise indirectly from the breach

  • To recover, damages must be:
    (1) reasonably foreseeable at the time of contract formation,
    (2) arise from P’s special circumstances that D knew of (or had reason to know of),
    AND
    (3) certain (not speculative).
74
Q

**Punitive Damages

A

Meant to punish a wrongdoing party.

  • NOT usually available for breach of contract.
  • May be awarded for breach of contract involving fraud or tort claims.
75
Q

** Specific Performance

A

Is an equitable remedy, is only available if monetary damages are inadequate to compensate an injured party.

 - NOT awarded for personal service 
 contract, but injunctive relief may be 
 awarded.
76
Q

***UCC Seller’s Remedies and Damages

A

When a buyer breaches, a seller may recover/do any of the following:

a) WITHHOLD DELIVERY of goods;
b) CANCEL the contract;
c) COVER DAMAGES - difference between the resale price and the contract price (used when seller resold in good faith);
d) MARKET DAMAGES - difference between market price and contract price;
e) LOST VOLUME SELLER - can recover lost profits on a sale if the seller regularly sells the goods at issue and has unlimited inventory;
f) STOP DELIVERY of goods (if buyer is insolvent and goods are in possession of carrier/bailee); OR
g) REPLEVY identified goods from an insolvent buyer (in certain instances).

*Seller is also entitled to INCIDENTAL DAMAGES - the commercially reasonable costs as a result of the breach.

77
Q

***Right to Replevy Identified Goods

A

A seller is allowed to replevy goods when:
1) Buyer was insolvent when it received the goods
AND
2) Seller makes a demand within 10 days of buyer receiving the goods.

*A buyer’s MISREPRESENTATION OF SOLVENCY in writing within 3 months prior to the delivery of goods REMOVES the 10-day limitation above.

78
Q

***UCC Buyer’s Remedies & Damages

A

When a seller breaches, a buyer may recover any of the following:

a) Cover Damages - Difference between contract price and price of substitute goods (if purchased in good faith);
b) Market Damages - difference between market price and contract price (if not in good faith or no cover at all); OR
c) Loss-in-Value Damages - difference between the value as promised and the value of the non-conforming goods (when buyer kept the non-conforming goods).

79
Q

**Waste Doctrine

A

When an award for cost of completion is wasteful, a court may award damages for DIMINUTION IN VALUE (the difference in value of the property/land).

 - This may be awarded instead of expectation damages.
80
Q

**Waste Doctrine

A

Applies when:

1) Contractor performs in good faith, but defects exists, AND
2) Remedying the defects would entail economic waste (the cost of completion greatly exceeds the vale of the completed work).

*Normally seen in the construction contract context

81
Q

***Restitution (Unjust Enrichment)

A

Awarded to prevent unjust enrichment when one party confers a benefit.

 - Damages = value of benefit conferred.
 - A party cannot recover both restitution and expectation damages.
82
Q

**Rescission

A

Treats the original contract as cancelled.

  • Available when there is a problem with contract formation.

A contract will NOT BE rescinded if:

a) there is a valid equitable defense; OR
b) plaintiff sued for damages under the contract in prior action

  • A party may sue for both damages and rescission at the same time.
83
Q

**Mitigation of Damages

A

A party MUST take reasonable step to mitigate losses.

 - If a party fails to do so, the court will reduce the total damages by the amount that could have been avoided. * A party CANNOT recover damages that could have been avoided.

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