Contracts Most Tested Flashcards
Common Law vs. UCC
The common law governs if a contract deals with services or real estate. The UCC governs if a contract deals with goods.
Mixed Contracts
For mixed contracts, the predominant purpose of the contract determines whether the common law or UCC governs.
Requirements to Form a Valid Contract
An enforceable contract is formed when there is: (1) mutual assent (a valid offer and valid acceptance of offer); (2) consideration; and (3) no defenses to formation that would invalidate the contract.
Expectation Damages
The goal of expectation damages is to put the non-breaching party in the same economic position that it would be if the contract had been performed. Expectation damages are measured by comparing the value of performance without the breach to the value of performance with the breach.
Expectation Damages - Limitations on Calculation
Expectation damages must be proven with reasonable certainty. Unforeseeable consequential damages are not recoverable unless the breaching party had some reason to know about the possibility of the unforeseeable damages.
Statute of Frauds - Contracts Triggering Statute of Frauds
The following contracts are not valid unless they satisfy the statute of frauds (usually requires the contract be a signed writing): (1) contract made in consideration of marriage; (2) contract promising to guarantee the debt of another; (3) a contract that cannot be performed within one year; (4) a contract for the purchase or sale of goods for $500 or more; and (5) a contract to transfer, receive, or create an interest in real estate.
Statute of Frauds - Satisfying the Statute of Frauds
A writing will satisfy the statute of frauds if: (1) it is signed by the party against whom enforcement is sought; (2) shows that a contract was formed; and (3) includes the required terms. The required terms under common law are parties, subject, quantity, and price. The required terms under the UCC are parties, subject, and quantity.
Statute of Frauds - Service Contracts under One-Year Provision
Under common law, full performance of services contract by either side satisfies the statute of frauds.
Statute of Frauds - Real Estate Contracts
Real estate contracts can satisfy the statute of frauds if the seller fully performs (ie, coveys land to buyer) or the buyer performs two of the following actions: (1) buyer takes possession of property; (2) buyer makes payment in full or in part; and/or (3) buyer makes substantial improvements to the land.
Statute of Frauds - Goods $500 or More
Under the UCC, the statute of frauds is satisfied for the quantity of goods for which payment has been made and accepted or which have been received and accepted.
Statute of Frauds - Goods $500 or More (Written Confirmation Between Merchants)
Under the UCC, the statute of frauds is satisfied if after an oral agreement between merchants, either party sends a signed, written confirmation of the oral contract and the written confirmation is received by the other merchant unless the party receiving the written confirmation gives written notice of objection within 10 days of receipt.
Statute of Frauds - Goods $500 or More (Specifically Manufactured Goods)
Under the UCC, the statute of frauds is satisfied when a seller makes a “substantial beginning” toward manufacturing custom goods that are to be specially made for the buyer and that are not suitable for the sale to others.
Terminating the Offer
If a valid offer is terminated at any time before acceptance, the offer is invalidated. It cannot be accepted or revived unless a new offer is made. An offer is terminated if: (1) offeror revokes offer by express communication to offeree; (2) offeree learns that offeror has taken action inconsistent with continuing to contract; (3) offeree rejects offer; (4) offeree gives a counteroffer; (5) offeror dies or becomes incapacitated; (6) a reasonable amount of time passes; or (7) the subject matter of the offer becomes illegal or destroyed.
Irrevocable Offers - Option Contracts
The offeror is normally free to revoke at any time prior to acceptance; however, an agreement where consideration is given in exchange for a promise to keep an offer open is irrevocable.
Irrevocable Offers - Firm Offers
Under the UCC, a merchant (someone who regularly deals in the types of goods at issue) can make a firm offer to buy or sell goods. A firm offer will last as long as stated in the offer or for a reasonable period not to exceed 90 days. A firm offer must: (1) be in writing; (2) contain an explicit promise not to revoke; and (3) be signed by the merchant.
Irrevocable Offers - Offeree has started performance
A unilateral offer to contract cannot be revoked by the offeror if the offeree has started performance. A unilateral offer arises from a promise that requests acceptance by an action of promisee.
Irrevocable Offers - Detrimental Reliance
An offer cannot be revoked if the offeree reasonably and detrimentally relies on the offer in a foreseeable manner.
Terms Required in the Offer
Under common law, all essential terms must be specified in offer (parties, subject, quantity, and price). Under the UCC, the law plugs the gaps for missing terms. The only terms required are parties, subject, and quantity.
Offer
To form a valid offer, the offeror must (1) manifest an objective willingness to enter into an agreement; and (2) create a power of acceptance in the offeree.
Acceptance
An acceptance is a manifestation of willingness to enter into an agreement by the offeree. The offeror is the master of the offer, which means that the offeree must accept the offer according to rules of offer.
Acceptance - Bilateral vs. Unilateral
For bilateral contracts, the start of performance manifests acceptance. For unilateral contracts, the start of performance makes the offer irrevocable - the offer is only acceptance once performance is complete.
Contract Modification & Preexisting Duty Rule
Under the common law, contract modifications must be supported by consideration. The common law follows the preexisting duty rule, which means that a promise to do something that a party is already legally obligated to do is not consideration. Under the UCC, there is no consideration requirement.
Mirror Image Rule
Under the common law, the terms in the acceptance must match the terms of the offer exactly - otherwise, it is not an acceptance, it is a counteroffer.
UCC § 2-207 - Acceptance with New Terms
Under the UCC, an acceptance containing new terms will operate as an acceptance if it is a a definite and seasonable expression of acceptance or written confirmation that is sent within a reasonable time, unless acceptance is expressly made condition upon assent to additional or different terms.
UCC § 2-207 - Acceptance with New Terms (Both Parties Merchants)
Additional terms will govern the contract if both parties are merchants unless: (1) initial offer expressly limited acceptance to its terms; (2) additional terms materially alter deal; or (2) offeror objects to additional terms within reasonable amount of time.
UCC § 2-207 - Acceptance with New Terms (Knockout Rule)
Under the knockout rule, different terms that conflict with terms in the original offer and acceptance knock each other - UCC uses gap fillers. The knockout rule does not apply to additional temps added by the offeree.
Consideration
To form an enforceable contract, the agreemetn must be supported by consideration. Consideration is a transfer of legal value in a bargained-for exchange.
Not consideration: Gift promises; Conditional gifts; Pre-existing legal duties; Past consideration; Pretense of consideration; Illusory promise
Substantial Performance
Under common law, substantial performance is required, which means that performance will be satisfied so long as there is not a material breach. If there is a material breach, the non-breaching party’s performance is excused. If there is not a material breach, the non-breaching party’s performance is not excused.
Good Faith and Fair Dealing
All contracts have an implied obligation which requires the parties to act in good faith and deal fairly with one another without breaking their word, using deceptive means to avoid obligations, or denying what the other party understood.
Perfect Tender
Under the UCC, perfect tender is required, which means that a seller must deliver conforming goods. A nonconformity is a breach that allows the buyer to reject all or a portion of the goods.
Perfect Tender - Installment Contracts
Installment contracts (agreement for delivery in separate lots) do not have to satisfy perfect tender - the buyer can reject a specific installment when there is a substantial impairment that cannot be cured.
Perfect Tender - Curing Nonconformity
If the seller fails to tender perfect goods, buyer must give the seller a chance to cure nonconformity if the time for performance under the contract has not yet expired and the seller has reasonable grounds to believe that the buyer would accept a replacement for nonconformity.
Perfect Tender - Revocation of Acceptance
If a buyer fails to reject nonconforming goods after having reasonable opportunity to inspect goods, buyer has deemed to have accepted the goods. Buyer may revoke their acceptance if: (1) nonconformity substantially impairs value of goods; (2) revocation occurs within reasonable time after buyer discovers or should have discovered nonconformity and before any substantial change in condition of goods; and (3) buyer accepted goods on reasonable assumption that the nonconformity would be cured or without discovery of the nonconformity their acceptance was induced by the difficulty of discovery or by the seller’s assurances.
Anticipatory Repudiation (Common Law)
Under common law, anticipatory repudiation occurs when a promisor clearly and unequivocally repudiates a promise before the time for performance is due. Under common law, repudiation may be retracted until the promisee: (1) acts in reliance on the repudiation; (2) accepts the repudiation; or (3) commences action for breach of contract.
Anticipatory Repudiation (UCC)
Under the UCC, anticipatory repudiation occurs when (1) the buyer or seller makes an unequivocal refusal to perform; or (2) reasonable grounds for insecurity arise and the repudiating party fails to provide adequate assurances within a reasonable time (not to exceed 30 days).
Anticipatory Repudiation (Options for Remedy)
When an anticipatory repudiation occurs, the non-repudiating party may treat the repudiation as a breach and sue for damages or ignore the repudiation and urge performance.
