Contracts & Sales Flashcards
Contracts & Sales
Choice of Law
The common law of contracts applies to all contracts, other than the sale of goods, to which the UCC applies.
If the contract is for the sale of both goods and services, the dominant purpose governs
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Goods
Aricle 2 of the UCC defines goods as all things moveable at the time they are identified as the goods to be sold under the contract.
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Merchants
A merchant is a buyer or seller who regularly deals in goods of the kind sold.
Contracts & Sales
Formation
Checklist
- Preliminary Note (Unilateral v. Bilateral Contracts)
- Formation (Umbrella Rule)
- Offer
- Revocation
- Acceptance
- Consideration
Contracts & Sales
Defenses to Formation
Checklist
- Mistake
- Ambiguity
- Fraud
- Illegality
- Capacity
Contracts & Sales
Breach
Checklist
- Materiality
- Anticipatory Repudiation
- Demand for Assurances (UCC)
- Implied Covenant of Good Faith & Fair Dealing
Contracts & Sales
Excuses/Discharge
Checklist
- Impossibility
- Impracticability
- Frustration of Purpose
- Accord and Satisfaction
- Waiver
Contracts & Sales - Formation
Formation
Analytical Framework
Chronological Order
1. Offer
2. Acceptance
3. Counteroffer
4. Acceptance
5. Etc Etc
DO NOT FORGET to conclude on each element AND conclude on whether it is a valid contract
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Types of Offers/Contracts
Unilateral Contracts (Rare)
Unilateral contracts mandate acceptance only by performance
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Bilateral Contracts
Bilateral contracts consist of the exchange of mutual promises
Contracts & Sales - Formation
Offer
Umbrella Rule
An offer consists of a
1. Promise, Undertaking, or Commitment to enter a contract;
2. With essential terms certain and definite; AND
3. Communication of the Promise and the Terms to the Offeree
Contracts & Sales - Formation
Revocation
A revocation terminates the power to accept IF it is communicated to the offeree before they accept.
A revocation can be communicated directly OR where the offeree indirectly recieves correct information from a reliable source of acts that would indicate to a reasonable person that the offer is terminated.
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Direct Revocation
Revocation directly communicated to the offeree by the offeror terminates the offer.
Offers made by publication can be revoked by publication of revocation through comparable means
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Indirect Revocation
The offer may be terminated if the offeree indirectly recieves
- Correct Information
- From a Reliable Source
- of acts the Offeror that indicate to a Reasonable Person that the Offeror no longer wishes to make the offer
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Mailbox Rule
Under the mail box rule, a revocation is only effective when it is received
NOTE: If you are given various dates of communications back and forth, the mailbox rule may be applicable
Contracts & Sales - Formation
Revocation
Limitations
An offer can be revoked at will even if the offeror promised to keep it open.
However, the power to revoke is limited where:
1. Option
2. Merchant’s Firm Offer (UCC)
3. Detrimental Reliance
4. Performance of a Unilateral Contract Began
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Option
An offer is irrevocable where the offeree gives consideration in exchange for the offeror’s rpomise to keep the offer open
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Merchant’s Firm Offer
1. If a merchant
2. offers to buy or sell goods in a signed writing, and
3. the writing gives assurances that it will be held open, then
4. the offer is not revocable for a lack of consideration during the stated time, OR if no time is stated, a reasonable amount of time not to exceed 3 months.
NOTE: A firm offer is not automatically revoked and remains open until revocation.
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Detrimental Reliance
An offer will be held irrevocable as an option contract for a reasonable length of time where:
1. Offeror could reasonably expect that the Offeree would rely to their detriment on the offer, and
2. The Offeree does so rely
Contracts & Sales - Formation
Acceptance
Umbrella Rule
At common law, an acceptance is unqualified assent to the terms of an offer.
Acceptance must be communicated to the offeror.
An offer may be accepted by any medium reasonable under the circumstances, EXCEPT where the offer limits the form of acceptance, in which case acceptance must comply with the limitation.
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Mailbox Rule
Acceptance by mail creates a contract at the moment of dispatch, UNLESS:
1. The offer stipulates that acceptance is not effective until received or otherwise controls the form of acceptance, or
2. An option contract is involved,
in which case, acceptance is effective only upon receipt.
(Only comes up when there is attempted revocation that does not reach offerre before acceptance)
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Conditional Acceptance
An express rejection by the offeree terminates the offer
A conditional acceptance is not acceptance, but constitutes a rejection.
Contracts & Sales - Formation
Acceptance:
Counteroffer
Battle of the Forms (UCC)
Under the UCC, an acceptance that alters the terms is still a valid acceptance
Analysis depends on whether both parties are merchants, and if so, whether the varied terms are different or additional
Types of Battle of the Forms Analysis
1. One Non-Merchant
2. Different Terms
3. Additional Terms
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One Non-Merchant
If any party to the contract is not a merchant, the different or additional terms are considered proposed modifications and are not considered part of the contract UNLESS the offeror expressly agrees
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Different Terms
Different Terms contradict each other.
In dealing with conflicting terms, most courts apply the Knockout Rule, whereby the conflicting terms are both knocked out and are then replaced by a UCC gap filler
If no gap filler exists, then the terms may be replaced by the parties course of performance
Other courts treat different terms the same as additional terms
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Additional Terms
Additional terms between merchants become part of the contract, UNLESS
1. The offer expressly limits acceptance to the terms of the offer;
2. The additional terms materially alterthe offer; or
3. Notice of Objection to the additional or different terms is given within a reasonable time after the terms are received.
Contracts & Sales - Formation
Acceptance:
Prompt Shipment (UCC)
Offer to buy goods for prompt or current shipment can be accepted by the promise to ship or the shipment of goods.
Shipment of nonconforming goods is both acceptance and breach, UNLESS the seller seasonably notifies the buyer of the accomodation. In which case, the shipment is a counteroffer and the buyer may choose to either accept or reject and the seller is not in breach.
Contracts & Sales - Formation
Acceptance:
Perfect Tender
If goods or tender fail in any respect to conform to the contract, the buyer may accept all goods, reject all goods, or accept some goods and reject the rest.
However, if the seller offers to cure by tendering conforming goods within the time for performance, the buyer must allow the seller to do so.
Rejection must be within a reasonable time after delivery or tender, and requires that the buyer seasonably notify the seller (REMEDIES ISSUE)
Contracts & Sales - Formation
Consideration
Umbrella Rule
Consideration requires a bargained-for exchange–a detriment to the promisor and a benefit to the promisee.
Promise given in exchange for something already done (past or moral consideration) is not valid consideration, UNLESS promissory estoppel applied
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Promissory Estoppel
Where consideration fails AND the contract is invalid, reliance damages may be available if:
1. The promisor should reasonably expect to induce definite or substantial action or forebearance, AND
2. Action or forebearance is induced.
NOTE: only the promise is enforced, not the contract, so only reliance is available.
Contracts & Sales - Defenses to Formation
Mistake
Types of Mistake
- Mutual Mistake
- Unilateral Mistake
NOTE: Mistake in value is not a defense
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Mistake
When both parties to a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party IF:
- The mistake concerns basic assumptions upon which the contract was made;
- The mistake has material effect on the agreed-upon exchange; and
- The party seeking avoidance did not assume the risk of mistake
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Unilateral Mistake
If only one party is mistaken about facts relating to the agreement, the contract is voidable by the mistaken pary IF:
- The non-mistaken party knew or had reason to know of the mistake;
- The mistake has a material effect on the agreed-upon exchange; and
- The mistaken party did not bear the risk of mistake
Contracts & Sales - Defenses to Formation
Ambiguity
If a contract has terms susceptible to two meanings, the result depends on the parties’ understanding of the ambiguity.
If neither or both parties are aware of the ambiguity, the contract is unenforceable. UNLESS both parties intended the same meaning.
If one partyis aware of the ambiguity, the contract is formed based on the ignorant party’s reasonable interpretation of the term.
Contracts & Sales - Defenses to Formation
Fraud
If one party induces another party to enter a contract by fraudulent misrepresentation, the contract is voidable by the innocent party if the reasonably relied on the fraudulent misrepresentation.
Contracts & Sales - Defenses to Formation
Illegality
Illegal consideration or subject matter renders a contract void
Contracts & Sales - Defenses to Formation
Capacity
- Minors
- Mental Incapacity
- Intoxication
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Minors
Contracts with minors under the age of 18 are voidable by the minor.
A minor who disaffirms before reaching 18 is not required to perform, BUT they must recieve any consideration recieved that they still possess.
A minor affirms the contract by failing to disaffirm the contract within a reasonable time after turning 18.
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Mental Incapacity
Contract is voidable by the party whose mental capacity is so deficient that they are incapable of understanding the nature and significance of the contract
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Intoxication
One who is intoxicated so as not to understand the nature and signficance of their promise may be held to have made a voidable promise IF the other party had reason to know of the intoxication.
The intoxicated party may affirm the contract when sober.
Contracts & Sales - Defenses to Enforcement
Defenses to Enforcement
Umbrella Rule
Defenses to enforcement apply where a contract is made validly but is not enforceable.
- Statute of Frauds
- Unconscionability
NOTE: If it is an oral contract you must discuss the Statute of Frauds
Contracts & Sales - Defenses to Enforcement
Statute of Frauds
The Statute of Frauds requires certain contracts to be made in writing.
If the contract is not made in writing, contracts subject to the Statute of Frauds are unenforceable at the option of the party being charged.
The party being chaged waives this right if they do not raise it as a defense
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Writing Requirement
Contracts subject to the Statute of Frauds:
1. A promise to pay the debt of another
2. Any interest in land
3. Contracts that cannot be performed within one year; or
4. The sale of goods for $500 or more
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Writing Sufficiency
Any writing satisfies the Statute of Frauds if it:
- Is signed by the party charged; and
- References the terms that implicate the Statute of Frauds
Contracts & Sales - Defenses to Enforcement
Statute of Frauds Exceptions
List of Exceptions
Lack of writing does not render a contract unenforceable if:
1. Admission
2. Full Performance
3. Goods
4. Real Property
5. Detrimental Reliance
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Admission
Admission in pleadings in court (evidentiary or judicial) renders a contract subject to the Statute of Frauds valid, regardless of whether it satisfies the writing requirement
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Full Performance
Full performance is required if the contract is for services or sale of goods
Goods
(1) When goods have been either:
* specially manufactured, or
* paid for or accepted; AND
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(2) Written confirmation is provided between merchants where the recipient:
* had reason to know of the writing’s contents, AND
* has not objected within 10 days
Contracts & Sales - Defenses to Enforcement
Unconscionability
Umbrella Rule
A court may modify or refuse to enforce a contract or a contract provision to avoid unfair terms
Usually, unconscionability is due to unfairness in the bargaining process (procedural unconscionability), and is not simply due to an unfair price.
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Indicia
The most prominent indicia of unconscionability are
1. Whether the terms a reone-sided at the time of formation (especially in a pre-printed contract) and
2. Whether the parties have unequal bargaining power
Contracts & Sales - Third Party Beneficiaries & Assignees
Third Party Beneficiaries
Involves:
1. A promisor, the party promising to perform in favor of the third party beneficiary;
2. A promisee, the party who extracts the promise from the promisor in favor of the third party beneficiary; and
3. A third party beneficiary, a non-party who benefits from the promise.
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The issue is whether the nonparty can enforce the contract
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(1) Intended Beneficiaries
* Beneficiaries known at the time of contracting
* Can enforce the contract IF their rights are vested
* Can be either Creditor or Donee beneficiaries
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In determining whether a beneficiary was intended, consider whether:
1. The beneficiary is expressly designated or identifiable at the time of performance
2. Performance is made directly to the beneficiary
3. The beneficiary has rights under the contract
4. The relationship between the beneficiary and the promisee suggests the promisee wishes the beneficiary to be benefited.
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An Intended Third Party Beneficiary can enforce a promise only once their rights have vested.
Third Party Beneficiary rights may be modified or rescinded before they have been vested.
Rights vest when the beneficiary:
1. Manifests assent in a manner requested by the parties
2. Sues to enforce the promise; or
3. Materially changes their position in justifiable reliance of the promise.
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Types
(1) Creditor
* A creditor beneficiary is the person to whom the promisee owes a debt
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(2) Donee
* A donee beneficiary is the person to whom the promisee intendts to benefit gratuitously
RIGHTS
Either a creditor or donee beneficiary can sue the promisor if they fail to perform.
Only a creditor can sue the promisee (except for detrimental reliance) if they fail to perform.
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(2) Incidental Beneficiaries
* Beneficiaries who may or may not be known at the time of contracting
* Cannot enforce the contract.
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Defenses
The promisor can raise any defense against the Third Part Beneficiary that the promisor could have raised against the promisee