Contracts/Sales Flashcards
What are the elements of a valid contract?
1) MutualAssent(offerandacceptance); 2) Consideration;AND
3) Nodefensestoformation.
Priority: HIGH
What law governs contracts for the Sale of Goods?
Article 2 of the Uniform Commercial Code.
*Under the UCC, a contract may be made in any manner sufficient to show agreement (i.e. conduct showing parties recognize existence of a contract).
*For mixed contracts, the predominant purpose determines which law governs.
Priority: HIGH
What are the elements of Mutual Assent?
1) Offer: A manifestation of intent to contract, with definite and reasonably certain terms, that is communicated to the offeree.
2) Acceptance: A manifestation of assent to the terms of the offer, which indicates a commitment to be bound.
Priority: HIGH
When is an offer Terminated?
Offers may be terminated before acceptance by:
a) Rejection or Counter-offer by offeree; b) Lapse of time;
c) Revocation by offeror; OR
d) Death / Incapacity of either party.
Priority: HIGH
When may an offer be revoked, and which types of offers are not revocable?
They may be revoked at any time before acceptance through unambiguous words/conduct indicating an unwillingness/inability to contract (effective when received).
Irrevocable offers include: option contracts, a merchant’s firm offer, beginning performance for unilateral contracts, and offers that were relied on to the offeree’s detriment.
Priority: HIGH
What is a Merchant’s Firm Offer?
1) An offer to buy or sell goods;
2) By a merchant;
3) In a signed writing;
4) Which states that the offer will be held open and is not
revocable; AND
5) The assurance to keep the offer open must be signed
separately by the offeror.
*Enforceable WITHOUT consideration.
Rejection vs. Counteroffer
Rejection: Manifestation of intent to not accept an offer (words/conduct) which terminates the offer. Offers CANNOT be accepted after they have been rejected.
Counteroffer: Both a rejection that terminates the original offer and a NEW offer.
Priority: HIGH
What is the Mirror Image Rule and UCC exception?
The common law Mirror Image Rule holds that an acceptance MUST exactly mirror the offer.
UCC Art. 2 Exception: The acceptance DOES NOT need to mirror the offer, and additional terms may be added. Additional terms are included if:
1) Both parties are merchants;
2) The term is not a material change;
3) The offer doesn’t limit acceptance to the exact terms; AND 4) No objection was made within a reasonable time.
Priority: Medium
When is an agreement deemed Indefinite?
When the terms of the agreement are NOT certain (they cannot be ascertained to a reasonable degree of certainty), the contract is deemed indefinite and is UNENFORCEABLE.
*A contract that is indefinite as to duration is generally invalid.
Priority: Medium
What is Consideration?
A bargained for exchange of a promise for a return promise or performance (that benefits the promisor or causes detriment to the promisee).
*Past or moral consideration is NOT sufficient to support a contract. Priority: HIGH
When does Promissory Estoppel apply?
Applies when:
1) A party reasonably and foreseeably relied to his detriment on the promise of the other party;
2) Thepromisorshouldhavereasonablyexpectedachange in position in reliance of the promise; AND
3) Enforcement of the promise is necessary to avoid injustice.
Priority: HIGH
Settlement of Legal Claims
The voluntary relinquishment of some known right or privilege.
*Constitutes valid consideration.
Priority: Medium
What is the Common Law Pre-Existing Duty Rule? What are the exceptions?
Past performance or performance of a pre-existing duty is NOT adequate consideration.
Exceptions:
a) If there is an addition or change in performance or promise; OR
b) A fair and equitable modification is made due to unanticipated changed circumstance AND the contract is not yet fully performed by either party.
Priority: HIGH
Is consideration required for a modification to a UCC Art. 2 sale of goods contract?
NO, consideration is not required for contract modifications made in good faith.
BUT, the modification must be in writing if:
a) ItfallswithintheStatuteofFrauds;OR
b) The original contract states that modifications must be in
writing.
Priority: HIGH
Duress
Physical Compulsion vs. Economic Duress
Physical Compulsion: If a person physically compels a person to agree to contract, then the contract is void.
Economic Duress: If a person makes an improper threat that induces a party (who has no reasonable alternative but to enter into the contract), then the contract is void.
*A mere threat to breach is generally insufficient) Priority: Medium
Undue Influence occurs when?
There is:
1) Unfair persuasion of a person, 2) Who is either:
a. Under the domination of the person exercising the influence; OR
b. Justified in assuming that the person will not act in a manner inconsistent with his welfare because of his relationship between them (i.e. parent/child).
Priority: Medium
Mutual Mistake vs. Unilateral Mistake
Mutual Mistake: When (1) both parties are mistaken as to the basic assumption on which the contract is made, (2) the mistake is material to the contract, AND (3) the person asserting the mistake did not bear the risk of the mistake.
Unilateral Mistake: A mistake by one party, that is unknown to the other party, concerning a basic assumption that has a material effect on the contract.
Priority: Medium
Fraudulent Misrepresentation vs. Non-Fraudulent Misrepresentation
Fraudulent: When one party knowingly makes a false representation of a fact AND the other party reasonably relies on the misrepresentation to their detriment.
Non-Fraudulent: When there is a statement of material fact by a party or agent that is false, inducing the contract, AND the other party reasonably relies on the misrepresentation to his detriment.
Priority: Medium
Procedural Unconscionability vs.
Substantive Unconscionability
Unconscionability usually occurs if the contract/term is BOTH substantively and procedurally unconscionable.
Procedural: When one party to the contract has a superior bargaining position over the other, and uses that power to their advantage.
Substantive: When the contract contains terms that are obviously unfair and one-sided in favor of the person with the superior bargaining power.
Priority: Medium
Under the Statute of Frauds, which types of contracts require a signed writing to be valid?
1) Marriage contracts.
2) Suretyships (unless the main purpose exception applies). 3) Contracts that cannot be fully preformed in 1 year.
4) Contracts for the sale of real property (or creating an
interest in real property).
5) Promises to pay an estate’s debt from the personal funds
of the Executor/Administrator.
6) Contracts for the sale of goods for $500 or more.
Priority: HIGH
Contracts for the sale of goods for $500 or more MUST be in writing.
What are the four exceptions to this rule?
1) Merchant’s Confirmatory Memorandum. 2) Goods accepted or Paid for.
3) Custom Made Goods.
4) Admission during judicial proceeding.
Priority: HIGH
What satisfies the writing requirement under the Statute of Frauds?
The writing MUST:
1) Be signed by the party to be charged;
2) Identify the subject matter of the contract;
3) Indicatethatacontracthasbeenmadebytheparties;
AND
4) State the essential terms with reasonable certainty.
*An agreement DOES NOT need to be in one writing, it may consist of several writings.
Priority: HIGH
What are the exceptions to the Parol Evidence rule?
1) To correct a clerical error or typo.
2) To establish a defense against formation.
3) To interpret vague or ambiguous terms.
4) To supplement a partially integrated writing.
*The parol evidence rule DOES NOT apply to subsequent agreements.
Priority: Medium
What are the two instances where a Condition Precedent may be excused?
1) A protected party’s failure to cooperate or make a good faith effort.
2) Waiver – a protected party voluntarily gives up the protection of the condition.
Priority: Medium
How is good faith defined in the UCC?
Good faith is defined as:
1) Honesty in fact; AND
2) The observance of reasonable commercial standards
of fair dealing.
*Every contract contains an implied obligation of good faith and fair dealing.
Priority: Medium
Impossibility vs. Impracticability
Impossibility: Performance is discharged because of (a) the death/physical incapacity of a necessary person; (b) an unanticipated destruction of the necessary subject matter; OR (c) when a new law/regulation makes performance extremely and unreasonably difficult/expensive.
Impracticability: When an event occurs after contract formation, making performance extremely and unreasonably difficult/expensive.
Priority: Medium
When is performance excused under the Frustration of Purpose Doctrine?
When the purpose of the contract no longer exists IF:
1) A party’s principal purpose is substantially frustrated without his fault;
2) By an unforeseeable supervening event out of their control; AND
3) Both parties knew the purpose at the time of formation.
Priority: Medium
How do courts determine whether a breach is material?
They will consider:
1) The extent of the benefit deprived to the injured party;
2) The adequacy of compensation for loss to the non-
breaching party;
3) The extent the breaching party will suffer forfeiture;
4) The likelihood that the breaching party will cure; AND
5) Absence of good faith and fair dealing by the breaching
party.
Priority: HIGH
When is a contract divisible?
When:
1) The performances to be exchanged can be divided into corresponding pairs of part performances,
2) In way that the elements of each pair will be treated as if the parties had agreed they were equivalents.
*Both elements MUST be satisfied. Priority: Medium
Under the UCC Perfect Tender Rule, the seller must deliver conforming goods and the smallest non- conformity is a breach.
What are two exceptions to this rule?
Exceptions:
1) The seller has the right to cure in 2 situations: (1) If the time for performance has not yet expired, the seller can cure within the remaining time; (2) The seller had reasonable grounds that the non-conforming goods would be accepted.
2) Installment contracts: These contracts may only be cancelled if the installment is so defective that it substantially impairs the value of the entire contract.
Priority: Medium
After the acceptance of goods, when may a buyer later revoke that acceptance?
IF:
1) The non-conformity substantially impairs the value of the goods; AND
2) Either (a) the defect was difficult to discover (latent), (b) acceptance was reasonably induced by seller’s assurances, OR (c) the buyer accepted the goods on the reasonable assumption that the defect would be cured.
*If a buyer successfully revokes acceptance, he is entitled to return of the purchase price.
Priority: HIGH
When does an Anticipatory Repudiation occur?
When a party unequivocally communicates that he is unable or unwilling to perform.
*A party that breaches may retract its repudiation and restore the contract UNLESS the aggrieved party has: cancelled, materially changed his position, or indicated that he considers the repudiation final.
Priority: HIGH
When an Anticipatory Repudiation occurs, what may a non-breaching party do?
a) Treat the contract as repudiated and sue for damages;
b) Treat the contract as discharged;
c) Waituntilperformanceisdueandsuewhenperformance
doesn’t occur; OR
d) Urge the party to perform.
Priority: HIGH
What is an Accord and Satisfaction?
An accord is an executory contract between the parties promising to relieve a party of his contractual obligations in return for a specific act.
Upon Satisfaction of that act, a person is excused from further performance under the contract.
Priority: Medium
When is an Express Warranty created?
When:
1) A seller makes an affirmation of fact, promise, or description or provides a sample;
2) Which relates to the goods; AND
3) Becomes part of the basis of the bargain.
*Intent or direct words of “warranty” or “guarantee” are not required. Priority: Medium
What is the Implied Warranty of Merchantability?
Requires that all goods sold by a merchant MUST be fit for their ordinary purpose.
*Merchant = person dealing in goods of the kind. Priority: Medium
The Warranty of Title includes what warranties?
1) The title conveyed shall be good and its transfer rightful;
AND
2) The goods shall be delivered free from any security interest or other lien or encumbrance.
Priority: HIGH
Intended Third-Party Beneficiary vs.
Incidental Beneficiary
Intended: Not a party to the contract, but has rights because the contracting parties agreed that their respective performances were intended to benefit an identified third-party.
Incidental: A person that just happens to benefit, but has NO legal rights because the purpose of the contract was not to benefit them.
Priority: Medium
When does an Intended Third-Party Beneficiary’s rights vest?
When the beneficiary:
a) Manifests assent to the promise under the contact;
b) Detrimentallyreliedonthecontract;OR
c) Brings suit to enforce the contract.
*Once rights vest, a contract CANNOT be modified without the third-party’s consent.
Priority: Medium
When is an Assignment NOT valid?
IF:
a) It materially alters what is expected under the contract;
b) It is prohibited by law or public policy; OR
c) It is precluded by contract.
Priority: Medium
Assignments
Prohibitions vs. Invalidations
Prohibitions: Terms in a contract that prohibit the transfer of rights. If the rights are assigned, the assignor is liable for damages but the assignment is still valid and enforceable by the assignee.
Invalidations: Terms in a contract that void all assignments. If the rights are assigned anyway, the assignment is void.
Priority: Medium
When are contract duties not delegable?
When:
a) The contract prohibits delegations or assignments;
b) The delegation is against public policy;
c) The contract is for personal services that calls for the
exercise of personal skill or discretion; OR
d) The delegation materially alters the expectancy of the
obligee.
Priority: Medium
What are Expectation Damages? When are they recoverable?
They arise directly from the breach, and are an attempt to put the non-breaching party in the same position it would have been in but for the breach.
To recover, the damages must be:
1) Caused by the defendant;
2) Foreseeable;
3) Certain; AND
4) Unavoidable.
Priority: HIGH
What are Consequential Damages? When are they recoverable?
They arise indirectly from the breach, and are awarded because of the injured party’s special circumstances.
To recover, the damages must be:
1) Reasonably foreseeable at the time of contract formation;
2) Arise from the plaintiff’s special circumstances that the defendant knew or had reason to know of; AND
3) Reasonably certain (not speculative).
Priority: HIGH
Under the UCC, what remedies does a seller have if a buyer breaches a contract for the sale of goods?
a) Withhold delivery of the goods; b) Cancel;
c) Recovercoverdamages;
d) Recover market damages;
e) Recover lost profits if the seller is a lost volume seller; f) Stop delivery of the goods when he discovers buyer is
insolvent;
g) Stop delivery of a truckload when buyer breaches; OR h) Replevy identified goods.
Priority: HIGH
Cover Damages
vs.
Market Damages
vs. Loss-in-Value Damages
Cover: Difference in price between the contact price and price of substitute goods.
Market: Difference between the market price and contract price (used if buyer did not cover in good faith or at all).
Loss-in-Value: Difference between the value as promised and the value of the non-conforming goods (used if buyer keeps the non-conforming goods).
Priority: HIGH
When will the Waste Doctrine apply?
IF:
1) The contractor performs in good faith, but defects nevertheless exist; AND
2) Remedying the defects greatly exceeds the value of the completed work.
*In this instance, the decrease in value becomes the proper measure of damages.
Priority: HIGH
When is Restitution awarded?
It is awarded to prevent unjust enrichment, and is available when one party confers a benefit to another party.
Damages will be awarded based on the value of the benefit conferred.
Priority: HIGH
What is Rescission?
Recession treats the contract as canceled.
*It is available if there was a problem with contract formation
(defense to formation, fraud, misrepresentation).
Priority: Medium
When will a contract NOT be rescinded?
IF:
a) A valid equitable defense applies; OR
b) The plaintiff sued for damages under the contract in a
prior action.
Priority: Medium
