Contracts & Sales Flashcards
What test is applied when the transaction involves both the sale of goods and the rendering of services?
The predominant purpose test which determines which law applies to the entire transaction. An exception is made for divisible contracts, when the payment for goods can be easily separated from the payment for services.
What is the predominant purpose test?
A test that evaluates factors such as contract language, billing terms, allocation of costs, and the nature of the final product delivered to determine whether the contract should be considered, predominantly a contract for goods or for services.
An exception is made for divisible contracts, when the payment for goods can be easily separated from the payment for services.
How is a contract formed?
Mutual assent (offer and acceptance) and consideration.
How is intent determined in contract law?
Under the objective theory. Whether a party intends to enter into a contract, is judged by outward objective facts, as interpreted by a reasonable person. The intent of a party is what a reasonable person in the position of the other party would believe as a result of that parties, objective manifestation of intent. 
What is an express contract? What is an implied contract?
When words expressed the intent of the parties, the contract is an express contract. When conduct indicates assent or agreement, the agreement is considered implied in fact. 
What is an offer?
A communication that gives power to the recipient to conclude a contract by acceptance.
What terms can the UCC fill the gap for?
Time (reasonable) or place for delivery (sellers place of business), time of payment (when buyer is to receive the goods), the assortment of goods (reasonable choice of the buyer), and even price for the goods (reasonable price based on objective standard, course of performance or course of dealing or trade usage).
UCC cannot fill the gap for subject matter and quantity.
What’s the difference between a bilateral contract and a unilateral contract?
If a return promise is requested then the contract is a bilateral contract. If an act is requested, then the contract is a unilateral contract. 
What are ways to terminate an offer? 
Lapse of time in offer, death, or mental incapacity, destruction or illegality, revocation, rejection.
What is an option offer?
An independent promise to keep an offer open for a specified period of time. Such a promise limits the offeror’s power to revoke the offer, until after the period has expired, while also preserving the offeree’s power to accept. 
While the option contract is in effect, the offeree’s power of acceptance, cannot be terminated by rejection, counteroffer, revocation, or by death, or in capacity of the offeror 
What is the UCC firm offer rule?
An offer to buy or sell goods is irrevocable if:
- The offeror is a merchant,
- There is an assurance that the offer is to remain open, and
- The assurance is contained in a signed writing from the offeror.
What is promissory estoppel? 
When the offeree reasonably and detrimentally relies on the offerors promise prior to acceptance. It must have been reasonably foreseeable that such detrimental reliance would occur in order to imply the existence of an option contract. 
What is the mailbox rule? 
An acceptance that is mailed within the allotted response time is effective went sent, not upon receipt, unless the offer provides otherwise. 
What is the mirror image rule? 
The acceptance must mirror the terms of the offer. 
The UCC does not follow the mirror image rule. An acceptance that contains additional or different terms with respect to the terms, and the offer is treated as an acceptance rather than a rejection and a counter offer. 
In battle of the forms, what happens when the acceptance includes additional terms? 
An additional term in the acceptance is automatically included in the contract when both parties are merchants, unless:
- The term materially alters the original contract;
- The offer expressly limits acceptance to the terms of the offer; or
- The offeror has already objected to the additional terms, or objects within a reasonable time after notice of them was received. 
In battle of the forms, what happens when the acceptance includes different terms?
Most courts will apply the “knockout rule,” under which different terms in the offer and acceptance notify each other and are knocked out of the contract. This creates a gap and the court will use Article 2’s gap filling provisions to patch the holes. 
What is consideration? 
It is a bargained for exchange. Consideration can take the form of a return promise to do something, return promise to refrain from doing something, the actual performance of some act, or refraining from doing some act. 
What is the pre-existing duty rule?
At common law, a promise to perform a pre-existing legal duty does not qualify as consideration because the promisor is already bound to perform. 
What are the rules for modifying a contract? 
At common law, modification of an existing contract must be supported by consideration. Under article 2 of the UCC, no consideration is necessary to modify a contract, however, good faith is required. Good faith requires honesty, in fact, and fair, dealing in accordance with reasonable commercial standards. 
What is an accord and satisfaction? 
A party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other parties, existing duty. 
There is no satisfaction until performance, and the original contract is not discharged until satisfaction is complete. If an accord is breached by the party, who has promised a different performance, the other party can sue either on the original contract or under the accord agreement. 
What is an illusory promise? 
In illusory promise, is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. 
What is a requirements contract? 
A requirement contract is a contract under which a buyer agrees to buy all that he will require of a product from the other party. 
What is an output contract? 
An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer. 
What is the material benefit rule?
When a party performs an unrequested service for another party, that constitutes a material benefit, the modern trend permits, the performing party to enforce a promise of payment made by the other party after the service is rendered. This rule is not enforced when the performing party render the services without the expectation of compensation, such as a gift. 
What is promissory estoppel? 
The doctrine of promissory estoppel can be used under certain circumstances to enforce a promise that is not supported by consideration. The promisee must actually rely on the promise, and such reliance must have been reasonably foreseeable to the promisor. 
What are the defenses to contract formation? 
By showing there was no meeting of the minds due to…
- Misunderstanding
- Incapacity
- Mistake
- Misrepresentation / Fraud / Nondisclosure
- Duress
- Illegality
- Unconscionability
What is mutual mistake? 
Mutual mistake occurs when both parties are mistaken as to an essential element of the contract. In such a situation, the contract may be voidable by the adversely affected party upon proof of 1. mistake of fact existing at the time the contract was formed, 2.! the mistake relates to a basic assumption of the contract, 3. the mistake has a material impact on the transaction And, 4. the adversely affected party, did not assume the risk of the mistake. 
What is a unilateral mistake? 
When only one of the parties was mistaken, as to essential element of the contract, at the time, the contract was formed, either party can generally enforce the contract on its terms. However, the mistaken party can void the contract if the elements for a mutual mistake exist:
- The mistake would make enforcement of the contract unconscionable.
- The non-mistaken party causes the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should’ve known that the other party was mistaken. 
What happens if there is a misunderstanding of the contract? 
If neither party knew, or should have known of the misunderstanding, or both parties know of the misunderstanding, then there is no contract.
If one party knows, or should know of the misunderstanding, then there will be a contract, formed based on the meaning of the term as understood by the unknowing party. 
What is fraudulent misrepresentation? 
Fraudulent misrepresentation requires proof that
- The misrepresentation is fraudulent;
- With intent to Misleh, the other party, and the misrepresentation induced assent to the contract; and
- The adversely affected party justifiably relied on the miss representation.
Fraud in the factum occurs when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction. In such a case, no contract is formed, and the apparent contract is void, unless reasonable diligence would have reveal the truth terms of the contract.
Fraud in the inducement occurs when a fraudulent misrepresentation is used to induce another party to enter into a contract. Such a contract is avoidable by the adversely affected party, if she justifiably relied on the misrepresentation in entering into the agreement. 
What is undue influence? 
Undue influence is the unfair persuasion of a party to assent to a contract. The key is whether a party has been able to exercise free, and competent judgment on whether the persuasion of the other party has seriously impaired that judgment.
Factors include the fairness of the bargain, the availability of independent advice, and the susceptibility of a party to being persuaded. 
What is contract duress?
Duress is an improper threat that deprived a party of meaningful choice.
When a parties agreement to enter into a contract is physically compelled by duress, the contract is void. In other instances, when a party is induced to enter into a contract by duress, the contract is voidable. 
What is capacity to contract? 
Parties to a contract must be competent. They must have the legal capacity to be held to contractual duties. Incompetency arises because of infancy, mental illness, or defect, guardianship, intoxication, and corporate incapacity. 
Infancy. The contract is avoidable by the infant, but not the other party. An exception to the infancy rule exists when the contract is based on necessities. When necessities are furnished to the infant, the infant must pay for them, and the recovery is limited to the reasonable value of the services or goods under a theory of quasi contract.
Mental illness. If the person is adjudicated, mentally incompetent, the contract is void. If there has been no adjudication, the contract is voidable, and may be disaffirm by the individual if the individual is unable to understand the nature and consequences of the transaction, or act in a reasonable manner with regard to the transaction, and the other party has a reason to know of this fact.
Guardianship. If an individual is under guardianship, by reason of an adjudication, a contract made by the individual is void. Except the guardian may be liable for necessities furnished by another party.
Intoxication. Intoxicated due to alcohol or drugs, is voidable by the intoxicated party, if that person was unable to understand the nature and consequences of the transaction, and the other party had reason to know of the intoxication. 
What are contract defenses to enforcement?
Illegality, unconscionability, public policy 
What is an implied in fact contract?
When a persons assent to an offer is inferred solely from that persons conduct. 
What is an implied in law quasi contract?
- The plaintive has conferred a measurable benefit on the defendant;
- The plaintiff acted without gratuitous intent; and
- It would be unfair to let the defendant retain the benefit, because either the defendant had an opportunity to decline the benefit, but knowingly accepted it, or the plaintiff has a reasonable excuse for not giving the defendant such opportunity. 
What are the three warranties and sale of goods contracts?
- Express warranty.
Any promise, affirmation, description, or sample that is part of the basis of the bargain.
 - Implied warranty of merchantability.
Implied warranty when the seller is a merchant, that deals in goods of this kind, and to be merchantable, goods must be fit for the ordinary purpose and pass without objection in the trade under the contract description. - Implied warranty of fitness for a particular purpose.
A warranty that the goods are fit for a particular purpose is implied when the seller has a reason to know that the buyer has a particular use for the goods, and the buyer is relying upon the seller skill to select the goods. 
What are ways a contract can be discharged?
- Impracticability. Performance becomes illegal after the contract is made, the specific subject matter of the contract is destroyed, in a personal services contract, the performing party to the contract, dies or becomes incapacitated, or performance becomes impracticable.
Elements: 1) in unforeseeable event has occurred, 2) nonoccurrence of the event was a basic assumption on which the contract was made, and 3) the party seeking discharge is not at fault.
- frustration of purpose. applies when an unexpected event arises that destroys one parties purpose in entering into the contract, even if performance of the contract is not rendered impossible. The frustrated party is entitled to resend the contract without paying damages.
- Rescission by mutual agreement. Parties may mutually agree to cancel a contract, except where the rights of a third-party beneficiary have already vested.
- Destruction or injury to identified goods. If the goods are destroyed by no fault of either party, before the risk of loss passes to the buyer, then the contract is voided. Both parties are discharged, neither party must perform, and neither party has breached. 
