Contracts - Overview Flashcards
WHAT LAW APPLIES? - UCC Article 2
- The UCC governs all contracts for the sale of goods
2. Special rules govern transactions between merchants
WHAT LAW APPLIES? - Common Law
Any contracts not governed by the UCC are governed by the common law
IS THERE A VALID CONTRACT? - Offer
- Is there a valid offer?
a. Manifestation of a present intent to contract demonstrated by a promise, under- taking, or commitment;
b. Communicated to an identified offeree; and
c. Definite and certain terms - Has the offer been terminated?
a. Lapse of time—must accept within specified time period or, if none, within reasonable time
b. Revocation—words or conduct of the offeror terminating the offer
1) Revocation is effective when received by offeree
2) Irrevocable offer:
a) Merchant’s firm offer under UCC
b) Option contract—offeree gave consideration to hold open offer
c) Detrimental reliance
c. Rejection—words or conduct of the offeree rejecting the offer
1) Rejection effective when received by offeror
2) Counteroffer acts as rejection
d. Termination by operation of law when:
1) Destruction of subject matter of the contract
2) Supervening illegality of subject matter of contract
3) Death or insanity of either party
IS THERE A VALID CONTRACT? - Acceptance
- Unequivocal acceptance
a. Common law—acceptance of each and every term of the offer (mirror image rule)
b. UCC—an acceptance that adds terms to the offer is valid
1) Between merchants, the additional terms become part of the contract unless they materially alter the contract, the offeror objects, or the offer is limited to its terms (“battle of the forms”) - Methods of acceptance
a. UCC—reasonable means
b. Unilateral contract—performance
c. Bilateral contract—promise or performance - Acceptance effective upon dispatch (mailbox rule) a. Limitation—offeror opts out; rejection sent first
IS THERE A VALID CONTRACT? - Consideration
- Bargained-for exchange (not a gift), and
- Detriment to promisee or legal benefit to promisor (courts focus on detriment)
a. Adequacy generally irrelevant
b. Past consideration generally invalid (preexisting duty rule)
1) Exceptions:
a) Written promise to pay time-barred debt
b) New or different consideration promised
c) Promise ratifying a voidable obligation (e.g., minor ratifying upon reaching age of majority)
d) Compromise of honest dispute
e) Unforeseen circumstances make modification fair and equitable (modern rule) or rise to the level of impracticability (majority view)
f) Good faith modification under Article 2 - Substitutes
for consideration—promissory estoppel and detrimental reliance
IS THERE A VALID CONTRACT? - Must Be No Defenses to Formation or Enforcement
- Mistake
a. Unilateral mistake—contract is voidable if nonmistaken party knew or should have known of mistake
b. Mutual mistake—contract is voidable by adversely affected party if:
1) Mistake concerns basic assumption on which contract was made;
2) Mistake has material effect; and
3) Party seeking avoidance did not assume risk
c. Ambiguous terms—one party aware of ambiguity = contract; neither party or both parties aware of ambiguity = no contract - Fraud and misrepresentation (includes concealment and nondisclosure)
- Illegality of consideration or subject matter
- Incapacity—infancy, mental incapacity, intoxication, duress, and undue influence
- Statute of Frauds—certain contracts must be in writing, signed by the party to be charged (“MY LEGS” )
a. Marriage—when marriage is consideration for promise (e.g., “If you marry my son, I will buy you a car”)
b. Year—promises that cannot be performed within one year from date of contract
c. Land—promises creating interests in land (e.g., leases, easements, fixtures,
mineral rights, mortgages)
d. Executors and administrators—promises to pay estate debts from own funds
e. Goods—contracts for sale of goods for a price of $500 or more
1) Exceptions—specially manufactured goods, goods accepted or paid for
f. Suretyship—promise to answer for debt of another - Unconscionability—court may refuse to enforce to avoid unfair terms (e.g., contracts of adhesion)
WHAT ARE THE TERMS OF THE CONTRACT? - Rules of Contract Construction
General rules: contracts are construed as a whole, words are generally given their ordinary meaning, written or typed terms prevail over printed, custom and usage in business and locale is considered, court will try to find contract valid, and ambiguities are construed against the contract’s preparer
WHAT ARE THE TERMS OF THE CONTRACT? - Parol Evidence Rule
When parties intend that a writing is the final expression of their bargain, no prior (oral or written) or contemporaneous (oral) expressions are admissible to vary the terms of the writing
- Integration—final and complete expression
a. If incomplete (partial integration), evidence admitted to supplement
b. Merger clause (states agreement is complete on its face) is evidence of full integration - Evidence outside scope of the rule may be admitted:
a. Evidence concerning validity (e.g., formation defects, conditions precedent)
b. Evidence used to interpret (words used are uncertain or ambiguous)
c. Evidence showing true consideration paid
d. Evidence in action for reformation
WHAT ARE THE TERMS OF THE CONTRACT? - Article 2 Provisions
- “Gap-fillers”
If missing, Article 2 provides: price (reasonable at time of delivery), place of delivery (seller’s business), time of shipment (reasonable), time for payment (receipt of goods), and assortment (buyer’s option) - Delivery Terms and Risk of Loss
a. Noncarrier cases
1) Merchant seller—risk passes to buyer upon taking physical possession
2) Nonmerchant seller—risk passes upon tender of delivery
b. Carrier cases
1) Shipment—risk passes on delivery to carrier
2) Destination—risk passes on tender at destination
3) F.O.B.—risk passes on delivery to F.O.B. location - Warranties in sales of goods
a. Types—title, against infringement, merchantability, fitness, express
1) Implied warranty of merchantability (goods are fit for ordinary purpose) implied in every contract by merchant of goods of kind sold
2) Implied warranty of fitness for particular purpose implied whenever any seller has reason to know particular purpose for which goods to be used and that buyer is relying on seller’s skill and judgment to select goods, and buyer does in fact rely
b. Disclaimers
1) Title—specific language or circumstances putting buyer on notice that seller is not claiming title
2) Merchantability
a) Specific disclaimer must mention “merchantability” and, if in writing, must be conspicuous
b) Also can be disclaimed by “as is,” refusal to examine, or course of dealing
3) Fitness for a particular purpose—only by conspicuous writing or general disclaimer (“as is,” refusal to examine, course of dealing)
4) Express—disclaimer usually not given effect
c. Damages—difference between goods tendered and as warranted
WHAT ARE THE TERMS OF THE CONTRACT? - Modification of Terms
- Common law
a. Under general contract law, additional consideration needed
b. Modern view permits modification without consideration if due to circumstances that were unanticipated by the parties when the contract was made and it is fair and equitable
c. Written contract can be modified orally even if contrary provision - UCC Article 2
a. No consideration needed so long as in good faith
b. Must be in writing if, as modified, contract is for $500 or more
c. Gives effect to provisions prohibiting oral modification
HAS PERFORMANCE BEEN EXCUSED OR DISCHARGED? - Has the Condition (Precedent, Concurrent, or Subsequent) Been Excused?
- Hindrance or failure to cooperate
- Breach of contract
- Anticipatory repudiation—party unequivocally indicates he will not perform before time of performance
- Prospective inability or unwillingness to perform—doubts as to party’s performance
- Substantial performance
- Divisibility of contract
- Waiver or estoppel
HAS PERFORMANCE BEEN EXCUSED OR DISCHARGED? - Has the Absolute Duty Been Discharged?
- Performance or tender of performance
- Occurrence of condition subsequent
- Illegality of subject matter after contract was made
- Impossibility, impracticability, or frustration of purpose
- Rescission of contract
- Modification of contract
- Novation (replacing parties) or substituted contract (replacing contract)
- Accord and satisfaction
BREACH? - Material or Minor Breach (Common Law)
- Minor breach—obligee gains the substantial benefit of bargain so aggrieved party must perform, but right to damages
- Material breach—obligee does not gain substantial benefit of bargain so no duty to perform, immediate right to damages and other remedies
BREACH? - Perfect Tender Rule (UCC Article 2)
If goods or delivery fail to conform to contract in any way, buyer generally may reject all, accept all, or accept any commercial units and reject rest
WHAT REMEDIES ARE AVAILABLE IF THE CONTRACT HAS BEEN BREACHED? - Specific Performance
If legal remedy (damages) is inadequate, court may order breaching party to perform (land and rare or unique goods)