CONTRACTS & SALES Flashcards
What is a contract and what law applies?
A contract is a set of promises for the breach of which the law gives a remedy or the performance for which the law recognizes as a duty.
It is simply a legally enforceable agreement.
There needs to be an agreement and something more to make it enforceable such as consideration.
What are the types of contracts?
- Express Contracts - formed by language,
written or oral - Implied contracts - formed by conduct
- Quasi-contracts- They are not contracts but a remedy to prevent unjust enrichment. A p can bring an action in restitution to recover the amount of the benefit conferred on the d.
What is a bilateral contract?
It is an exchange of mutual promise. A promise for a promise.
It can be accepted in any reasonable way.
What is a Unilateral contract?
It is one whereby the offeror requests performance rather than a promise.
Here the offeror promises to pay upon the completion of the requested Act. Once the act is completed, the contract is formed.
It occurs in two situations.
1. When the offeror clearly indicates that completion of performance is the only manner of acceptance.
- Where there is an offer to the public such as a reward offer.
Validity of a Contract
Void?
Voidable?
Unenforceable contract
- Void Contract.
It is totally without any legal effects from the beginning. e.g. an agreement to commit a crime. - Voidable Contract
It is one that both parties may elect to avoid, such that raising a defense makes it voidable ie Infancy and mental illness, - Unenforceable contract
it is an unenforceable contract otherwise valid but isn’t enforceable due to a defense like the SOF.
What is the governing Law?
UCC
Common Law
Generally common law governs contracts but for the sale of goods, the UCC applies.
UCC
Sale of goods or anything movable
Who is a Merchant?
A merchant is a person who deals with goods of a kind and is involved in the subject of the transaction.
Mutual Assent
To have a valid enforceable contract, there needs to be mutual assent. Ie one party must accept the other party’s offer.
This is an objective standard. Did words or conduct manifest a present intention to enter into a contract?
The Offer
It creates a power of acceptance in the offeree. It must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract based on the offered terms.
Solicitation to Offer
If it is a publication and advertisements are invitations for offers, not an offer themselves.
Specific Performance
It is a legal remedy when monetary damages are inadequate, the non-breaching party may seek specific performance, which is an order from the court for the breaching party to perform under the contract.
N.B.
Not available for personal services
Available for unique and rare goods, for land.
Pre-existing duty rule exception
If a party does or promises to do what he is already legally obligated to do, no consideration is needed.
Irrevocable waiver of Condition
After a condition fails to occur, the party whom the condition was intended to benefit may choose to ignore the non-occurrence and continue with their performance.
A waiver will be implied by:
1. The continuation of performance by the person who has benefited from the condition.
2. The acceptance of the benefit under the contract by that person.
Once waiver is given, it cannot be revoked if the other party relied on the waiver or it was made after the time for the fulfillment of the condition has passed.
Parole Evidence Rule
It prevents parties from a written contract to provide extrinsic evidence.
It applies when a party wants to add a term from preliminary negotiations to a final written agreement.
Consequential Damages
They are special damages and reflect losses over and above standard expectation damages. They arise because of the non-breaching party’s particular circumstances.
These damages may be recovered only if,
1. A reasonable person would have foreseen the damages as a probable result of a breach.
- The breaching party must have known or had reason to know of the special circumstances giving rise to the damages.
Non-conforming shipments
The UCC provides that a buyer may reject any installment that is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured.
Reformation
When parties orally agree on a deal, they may then reduce the agreement to writing, when that writing incorrectly reflects the oral agreement they made, either party may seek reformation from the court.
It is essentially a re-writing so that the document correctly reflects the oral agreement they originally made.
What is good faith and fair dealing in a contract?
Every contract within the UCC imposes an obligation of good faith in its performance and enforcement.
Good faith is honesty in fact and the observance of reasonable commercial standards. The common law also imposes a duty of good faith and fair dealing.
A breach of this duty usually involves exercising discretion in a way that deprives the other party of the fruits of the contract.
Definite and certain terms in Contracts
An offer must be definite and certain in its terms.
The inquiry in such cases is whether enough of the essential terms have been provided so that a contract including all those terms is capable of being enforced.
Real Estate Transactions- Land and Price Terms
An offer involving realty must identify the land and the price terms. The land must be identified with some particularity but the deed description is not required.
Courts will not provide a missing price term for realty.
Sale of Goods- Quantity Term.
In a contract for the sale of goods,
Requirement and output contracts
In a requirement contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
In an output contract, a seller promises to sell to a certain buyer all of the goods that the seller produces, and the buyer agrees to buy that amount from the seller.
It is then assumed that all the parties will act in good faith so they can’t be tender of or a demand for a quantity unreasonably disproportionate to (1) the stated estimate, or, (2) in the absence of a stated estimate) any normal or otherwise comparable prior output requirement.
Employment and other services.
In an employment contract, if the duration of the employment is not specified, the offer if accepted, is construed as creating a contract terminable at the will of either party.
For other services, the nature of work to be performed must be included in the offer.
Missing Terms under the UCC
If one or more terms are left open, it does not prevent the formation of a contract.
If it appears that the parties are intended to enter into a contract and there is a reasonable certain basis for giving the remedy. In this case, The majority of jurisdiction and the UCC hold the court to supply the reasonable missing terms.
Price
Only in real estate is price required**
Failure to state the price does not prevent the formation of a contract. If the parties intended to form a contract without the price being settled.
If price terms are missing for the sale of goods. the UCC provides that the price will be reasonable at the time of delivery.
Time
If no time is specified as to the act of performance, The law implies that it is to be performed within a reasonable time.
Terms to be agreed on later
If the term is material, that offer is too uncertain
How is an offer terminated?
Lapse of time - An offer may be terminated by the offeree’s failure to accept the offer within a specified time by the offeror, or if no dateline was specified within a reasonable time.
Revocation - When the offeror revokes that offer before the offeree accepts.
Indirect Revocation-
this can happen if the offeree receives 1.) Correct information, 2.) from a reliable source, 3.) of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer.
Counteroffer as Rejection- When a counteroffer is made by the offeree, it terminates the original offer that contains the same subject matter as the original offer but differs in terms.
Rejection- Express rejection, When an offeree makes a statement that they do not intend to accept the offer. It will terminate the offer.
A rejection is effective when received.
Where a a revocation is published, it is effective when published.
Rejection of Option
A rejection of or a counteroffer to an option contract does not constitute a termination of the offerer. The offeree is still free to accept the original offer within the option period unless the offeror has detrimentally relied on the offeree’s rejection.
Limitations on Offeror’s power to revoke
Option Contracts - When consideration is given
Merchants Firm Offer-
When parties are merchants, offer to buy or sell goods in a signed writing and the writing gives assurances that it will be held open.
The offer is not revokable for lack of consideration during the time stated or if no time is stated, for the reasonable amount of time not to exceed 3 months.
What is detrimental Reliance?
When the offeror could reasonably expect that the offeree would rely to their detriment on the offer and the offeree does so rely on, the offer will be held irrevocable as an option contract for a reasonable length of time.
Begin performance in response to a true unilateral contract offer.
It becomes irrevocable once the performance has begun. The offeror must give the offeree a reasonable time to complete the performance.
The offeree is not bound to complete the performance, they may withdraw at any time before completion of the performance.
Distinguish preparation from performance. It does not make the offer irrevocable but constitutes detrimental reliance.
Termination by Operation of Law
Death or insanity of either party- Unless in the option contract, the offer is terminated and death or insanity does not need to be communicated.
Destruction of the proposed subject matter or
Superseding illegality- Courts won’t enforce an illegal contract ie Murder for hire.
Acceptance under UCC
Shipment of non-conforming goods- It is an acceptance creating a bilateral contract as well as a breach of the contract unless the seller reasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation.
Battle of the Forms
The UCC abandoned the mirror image rule providing instead that the inclusion of additional terms by the offeree in a definite and timely acceptance does not constitute a rejection or counteroffer but rather is effective as an acceptance.
Anticipatory Repudiation
It occurs when a party unequivocally breaches as such a party is excused from performing if the other party breaches. The other party can sue immediately, suspend performance, and wait and see.
Implied Warranty of Merchantability
It is made by a merchant and warrants that goods are fit for their ordinary purpose. This warranty can be disclaimed by express language such as “as is” clause or through conduct.
Injunctive relief
A court may grant injunctive relief to enjoin a breaching party from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique.
Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique because it is difficult to supervise and most courts find that it is tantamount to involuntary servitude.
Statute of Frauds
Under contract Law, certain agreements must be in writing and signed by the party to be bound.
These are,
1. Promises in Consideration of Marriage
2. Contracts for the sale of goods over $500
3. Contracts for the sale of real estate and leases for more than 1 year.
4. Contracts for which performance cannot be completed in less than 1 year.
5. Suretyship ie promises to pay the debts of others
6. The executor promises to personally pay estate debts out of the estate funds.
Performance under a Land sale contract.
If a seller conveys
Contract Modification
A written contract can be modified orally, but the modification must be in writing if the contract as modified falls within the SOF.
Under UCC, if a contract has a clause that states that it must be modified in writing, that clause must be given effect.
If it is between a merchant and a nonmerchant, the provision requires a nonmerchant’s separate signature.
Waiver
If the parties attempt to modify a contract orally that requires written modification, it can operate as a waiver if a party changes position.
However, it can be terminated if communicated that strict performance is required before the contract and the other party must have not detrimentally relied on it.
Parole evidence rule
When parties to a contract express their agreement in writing with the intent that it embodies the final expression of their bargain, the writing is an integration.
It applies when a party wants to add a term from preliminary negotiations to a final written agreement.
If there is a complete integration, no terms will be admitted into evidence. e.g - This is the full and final agreement.
If there is a partial integration, consistent additional terms are admitted
Conditions
C- Precedents, it must occur before an absolute duty of immediate performance arises in the other party.
C- Subsequent, A condition that when it happens cuts off an already existing absolute duty of performance.
C- Concurrent, they are capable of occurring together, and that the parties are bound to perform at teh same time.
When does a breach occur?
A breach occurs when it is found that 1.) the promisor under an absolute duty to perform and 2) this absolute duty of performance has not been discharged. This failure to perform in accordance with the contractual terms will amount to a breach of the contract.
How to determine a material breach
In determining whether there is a material or minor breach, courts look at
1. The amount of benefit received by the non-breaching party.
2. The adequacy of the compensation for damages to the injured party
3. The extent of part performance by the breaching party
4. Hardship of the breaching party
5. Negligent or willful behavior of the breaching party AND
6. The likelihood that the breaching party will perform the remainder of the contract.
Effects of a minor breach
A breach is minor if the obligee gains the substantial benefit of their bargain despite the obligator’s defective performance. A minor breach does not relive the aggrieved party of their duty of performance under contract. It gives them a right to damages ie set off.
Effects of a Material breach.
If the obligee does not receive a substantial benefit from their bargain, the breach is considered material. If there is a material breach, the non-breaching party 1.) must treat the contract as at an end, that is any duty they owe will be discharged, and 2.) the non-breaching party will have the immediate right to all remedies for breach of the entire contract.
Timeliness of Performance.
Failure to perform by the time stated in the contract is generally not a material breach if performance is rendered within a reasonable time.
However, if the nature of the contract makes timely performance essential then failure to perform is usually a material breach.
Perfect Tender Rule.
If goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.
The right to reject is cut off by acceptance.
Installment contracts
These are contracts where there is more than one delivery.
An installment can be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured. The entire contract is breached only if the nonconformity substantially impairs the value of the entire contract.
Breach of warranty
Seller gives warranty as to the condition of the goods that apply even after acceptance. Failure to live up to these warranties constitutes a breach of warranty for which remedy is available.
Compensatory damages
It is used to put the non-breaching party in the position they would have been had the promise been performed.
Expectation damages
This is when a non-breaching party is given sufficient damages for them to buy a substitute performance. Ie benefit of the bargain.
Reliance damages
These are damages to put the non-breaching party in the position they would have been in had the contract never been formed.
incidental damages
Incidental damages are those related to avoiding the loss from the breach (e.g., storing goods after a breach).
Consequential Damages
These are awarded as foreseeable damages at the time of the contract. The breaching party must have known or had reason to know of the special circumstances giving rise to the damages.
Liquidated damages
liquidated damages clauses are enforced if the damages are difficult to estimate at the time the contract was made and a reasonable forecast of damages.
Penalties are not permitted under contract law.
Third Parties beneficiaries
Intended TPBs
When both parties intend to benefit, they have contract rights. The contract cannot be canceled or modified without the TPB’s consent if the rights have vested by detrimental reliance, assent to the contract, or suit to enforce the contract.
Incidental TPB
Benefits from the contract without the intent of parties and therefore they have no contract rights.
When is a contract rescinded?
When is it canceled and both parties are discharged of their obligations under the contract?
Mailbox rule
Under the mailbox rule an acceptance is effective when mailed if the offer is revocable and no rejection was mailed and received.
A rejection is effective upon receipt.
Promissory Estoppel
When the promisor has a reasonable expectation that the promise induced action and the promisor will be unjustly enriched they are estopped from going back on their promises.
Express warranties
These are statements of facts, promises descriptions of goods, and their samples and models that have been shown or presented to the buyer.
Fraudulent misrepresentation
It is a false assertion or fact made that was done
1. Knowingly or with intent to mislead or actual fraud
2. by mistake or innocently (constructive fraud)
3. Concealment of material fact when direct inquiry is made and the truth is evaded.
Mistake
It is a mistake or law or material fact.
Mutual Mistake- Voidable by the affected party if the mistake existed when the contract was formed, it relates to the basic assumption of the contract, has a material impact on the transaction and the adverse party did not assume the risk of the mistake.
A unilateral mistake is not voidable unless the other party knows or is shown to have known of the mistake.
Implied Warranty of Fitness for a particular purpose.
If the seller has a reason to know of the purpose and the buyer relies on the seller’s expertise.
