Contracts [the essentials] Flashcards
Common Law v. UCC
CL: services + real estate
UCC: goods
If mixed = predominant purpose wins out
Merchant
An individual who regularly deals with goods of the kind sold
Holds themselves out as having special knowledge/skill as to the practices/goods involves
Types of Ks
Express Contracts: formed by language [oral or written]
Implied Contracts [formed by conduct]
Quasi-Contracts: are NOT contracts but are the name given when an unenforceable contracts results in unjust enrichment
-this is generally the remedy of last resort–wasn’t a contract BUT..
Bilateral Contract
MOST CONTRACTS ARE BILATERAL
An exchange of mutual promises
Can be accepted in any reasonable way
If one starts to perform then there is implied acceptance
Generally acceptance must be communicated (silence not ok)
Exception: if the entities have prior dealings/trade practices (custom), making it commercially reasonable for the offeror to consider silence as an acceptance.
Unilateral Contracts
Acceptance by performance
Offeror promises to pay when performance is completed–meaning once the performance is completed, the contract is formed
Language: “my offer can only be accepted by….”
Unilateral contract offer becomes irrevocable once performance has begun [must begin as opposed to “mere preparation”]
Warrantes in UCC K
Contracts under UCC automatically include warranty of title
Express Warranties: affirmation of the sellers promises about the goods
Implied Warranty of Merchantability:
-saying goods are fit for ordinary foreseeable purpose
Implied Warranty of Fitness for Particular Purpose: (1) buyer comes with special purpose (2) seller knows (3) seller picks out goods for buyers special purpose (4) buyer relies on sellers skill and judgement
Limitations on warranties: sellers can disclaim implied warranties but NOT express
Limitations on damages: can limit as long as not unconscionable
EXCEPTION: personal injury
Requirements to form valid contract
1) mutual assent (offer + acceptance)
2) consideration
3) no defenses
Offer
Offeror must manifest objective willingness to enter into agreement
Must give offer power of acceptance
specific terms in offer
Terms needed in offer
CL: parties, subject, quantity, price
UCC: don’t need price
Ads + offer
Ads generally do not = offers
-considered invitations to deal
Exception:
-contains promise
-terms are certain
-offeree is IDed
Acceptance
Manifestation of willingness to enter into the agreement with the offeree
Terminating Offer
(1) Revocation by offeror prior to acceptance (2) offeree rejects (3) offeree makes counter-offer (4) lapse of time (5) conditional acceptance = rejection
Rejection is effective when RECEIVED by offeror
Will terminate contract automatically.
- Death or adjudication of insanity of either party
- Destruction of the subject matter of the contract
3.Intervening illegality
Indirect revocation
Offer may be revoked indirectly if the offeree receives (1) correct information (2) from a reliable source (3) acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes to make the offer
Mailbox Rule
Only applies to acceptances
Acceptance is effective upon dispatch–NOT receipt
Exception: if you write the address wrong–then the acceptance is effective upon receipt
Option
Promise to keep offer open for a period of time
CL: must have consideration
UCC: DOES NOT NEED CONSIDERATION.
Merchant Firm Offer Rule applies: If a merchant in a signed writing promises to keep the offer open for a period of time, than that merchant offeror cannot revoke the offer during that time
If no time stated–then the period of irrevocability can’t be more than 90 days
The Mailbox Rule does NOT apply to options–if you want to accept an option that has been held open for you, you have to accept WITHIN the option period (meaning your acceptance must be in the sellers hands by the end of the period)
Requirement Contract
Quantity is measured under the buyer’s good faith needs. You do NOT need a set quantity for a requirements contract
BUT–buyers orders must be proportionate with what has been ordered in the past–if disproportionate than seller does not. have to provide the larg(er) order
Common Law Acceptance
Must be a mirror image of that offer
Cannot change any terms of offer
if you do change–acceptance = counteroffer (and rejection)
UCC Acceptance
No Mirror image–just need to make a “seasonable expression of acceptance + can throw in additional terms
Battle of the Forms [BOTH parties must be merchants for this to apply]
(1) If offeree accepts the offer and makes a material alteration–terms of the offer controls, the added terms are out and we have a contract under the original terms of the offer
(2) If offeree accepts the offers and makes a non-material change to the offer, this change becomes part of the contract unless the offerror timely objects
MATERIAL CHANGE: Any change to an offer that affects money, liability, or remedies for breach of contract
(3) If offerree makes acceptance conditional upon assent to an additional term–THEN there is a counteroffer
Consideration
transfer of legal value in a bargained for exchange
Contract Modification
CL: must be supported by consideration
UCC: no consideration requirement
-valid if made in good faith
Promissory Estoppel
substitute for consideration
1) promise
2) reasonably foreseeable that the promise would induce action or forbearance
3) justice requires enforcement of contract
Defenses [to contract conformation]
Infancy
mental illness
intoxication–if other party had reason to know
necessaries doctrine
Mutual Mistake
Arises when both parties are mutually mistaken about the contract terms
If mutual mistake goes to heart of the contract–then it is grounds for reccission
Unilateral Mistake
Arises when only one party is mistaken about the contract terms
General Rule: is that unilateral mistake will NOT prevent contract formation
BUT–if non-mistaken party knows or has reason to know of the other parties mistake, they will not be allowed to take advantage of the mistaken party
SOF
MUST BE IN WRITING
MYLEGS
-marriage agreements
- contract for term of years (>1 year)
-land sale contracts
-executory contracts
-goods for 500+
-surety contracts–promises to answer for the debt of another
Merchants Confirmatory Memo
Merchant’s 10 day exception to the SOF
Requires 2 merchants
If one merchant within a reasonable time after entering into an oral agreement sends a written confirmation to the other merchant of that oral agreement it BINDS THE SENDING PARTY IMMEDIATELY.
If the recipient merchant does not object to the terms of that writing within 10 days of receipt, it BINDS THE RECIPIENT MERCHANT TOO
Perfect Tender Rule
UCC
Seller must deliver perfect tender to the buyer
When the PTR is violated–and the seller delivers nonconforming goods to a buyer: considered both an ACCEPTANCE and at the same time a BREACH OF CONTRACT
Buyer has three options:
(1) buyer can accept the goods and pay the contract price
(2) buyer can timely reject the goods and sue for damages
(3) buyer can accept any commercial units and reject the rest
BUT–if the delivery is accompanied by a notice of accommodation–the delivery is instead a COUNTER-OFFER
-basically here is what we had, if you want go ahead and keep otherwise ship back on my dime
Covering
UCC
Non-breaching party is expected to minimize damages by covering–getting goods from another party
STANDARD REMEDY UNDER UCC:
[cover price - contract price]
Once the non-breaching party has covered–they may recover the difference from the contract price and the cover price
3rd Party Beneficiary
Vesting of Rights: prior to the 3rd party’s rights vesting–the contracting parties can cancel or modify the contract sans the 3rd party’s consent. Once vested–CANNOT CANCEL OR MODIFY WITHOUT 3RD PARTY ASSENT
Rights vest when: (any one of these are fine)
(1) when they learn of the contract and they assent to it
(2) when they learn of the contract and they rely on it
(3) when they learn of the contract and bring an immediate lawsuit to enforce their rights
Parol Evidence Rule
Bars the introduction of prior or contemporaneous oral agreements that vary or modify the terms of a completely integrated written agreement
Exceptions:
Evidence of condition precedent–is ALWAYS allowed in
Trade Usage
Contract formation defenses
Course of dealing between parties
Industry practice
To interpret vague or ambiguous term [interpretation] can bring in evidence AND
Course of dealing: what parties conduct was in prior contracts
Course of Performance: parties conduct under prior installment of [current] contract
Condition Precedent
An act or event that must occur first before a party is under a duty to perform
Anticipatory Breach
An act or event that must occur first before a party is under a duty to perform
Demand for Adequate Assurances
Occurs when one party is concerned the other party may not perform–as a result of an expression of doubt as to one’s duty to perform (on the part of the person who is expected to perform)
In such a case the party that has those doubts, may seek adequate assurances OR they can wait around until performance is due and then if the other party doesn’t perform–it’s breach!
BE CAREFUL THO: If you sue just based on an expression of doubt–then you will be in breach
Assignment/Delegation
Rules:
NO CONSIDERATION NEEDED
(1) ALL CONTRACTS are assignable and delegable
Except–for unique personal service contracts and long term requirement contracts
(2) they can be oral or in writing
(3) they can be gratuitous or for value
BUT–gratuitous are viewed as being revocable while those for value are not [unless there is some evidence of reliance]
Novation
New contract substituting out one of the parties for a new party and all terms otherwise remain the same
Bearing Risk of [delivery] loss
Non Common Carrier Case: there is a hierarchy
(1) agreement allocates risk (controls)
(2) agreement where someone is in breach–the breaching party is liable and will bear risk
(2) no common carrier–depends on whether the seller is a merchant (a) merchant bears risk until buyer gets it (b) non-merchant bears risk until tenders goods to seller
[Tenders = seller telling buyer where stuff is + how to get it]
Common Carrier Cases:
Risk of loss will shift to the buyer when seller completes delivery obligation [not when actual delivery occurs]
Delivery obligations:
(1) shipment contract [most common] FOB “Sellers City”–buyer bears risk before they get the goods
(2) destination contract: FOB “not sellers city” [risk passes to buyer when goods are tendered to buyer at destination]
Conditions
Limit obligations of the contract
Express Conditions: if NOT satisfied than grants excuse to innocent party
-this CAN be waived
Express Condition Precedent: an event that must occur before performance is due
Conditions Subsequent: events after performance that could cut off an already existing duty
Excuse of Conditions: may be excused by action or inaction of person protected by condition
-failure to cooperation: must cooperate in good faith or forfeit protection of condition
Discharge by Recission
Party’s mutual agreement to cancel contract
Partial Discharge by Modification of Contract
If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. It will not serve to discharge the entire contract.
Discharge by Accord + Satisfaction
Accord = agreement to accept different performance to replace existing duty
-does not get excused just by the accord
-the accord must be satisfied and then original AND accord is discharged
NEED CONSIDERATION
Discharge by novation
new contract substitutes new party into a contract that exists already–in place of original party
Everyone has to know whats going on for this to be OK
Impossibility/Impractibility
Excuse of performance–a later unforeseen event that makes party’s performance impossible
Examples:
-death/physical incapacity [this generally refers only to specific unique services]
-supervening illegality
-subsequent destruction of contracts subject matter
Frustration of Purpose
(1) Both parties understood the central purpose (2) contract excused if contracts essential purpose undermined
Breach
The failure to perform a legal obligation
Material Breach
CL: Question is material breach OR substantial performance
-if SP then non-breaching party cannot avoid performance–must perform and THEN pursue remedies
Factors to consider re Materiality:
-benefit to non-breaching party
-adequacy of $ damages
-extent of part performance
-hardship to breaching party
-negligent/willful behavior of breaching party
If material breach:
-contract ended
-counter performance by NB party discharged
-IMMEDIATE right to remedies
Failure to perform within stated time does NOT equal MB unless time is of the essence
-courts will look to totality of the circumstances
Substantial Performance
SP results in minor breach
Occurs if non-breaching party has gotten substantial benefit of bargain
Courts consider
-benefit received by NB party
-part performance by B party
-hardship to B party
Acceptance of goods
Buyers accept if:
-indicate goods conform to contract
-indicate they will keep non-conforming goods
-fail to reject within
reasonable time
-act inconsistent with seller’s ownership
Acceptance can be revoked when:
[within a reasonable time and prior to substantial change to product]
-defect that substantially affects value + buyer accepted on reasonable belief that defect would be cured
-accepted goods because of difficulty discovering defect or sellers assurances that goods conformed
Right to cure
UCC
When non-conforming goods are rejected, seller has right to cure within the time for performance
Beyond contract time: if seller had reasonable belief that goods would be accepted, they can get some extra time to cure
Specific Performance
Rare! Occurs when money damages are inadequate
CL:
-only with land contracts
-service contracts no because that is involuntary servitude
UCC:
SP for goods: (1) goods unique (2) buyer cannot cover
Right to redeem from insolvent buyers
UCC
(1) buyer insolvent at receipt (2) seller demands reclamation within 10 days of receipt
10 day limitation is extended if misrepresentation of solvency within 3 months in writing
Liquidated Damages
Only upheld if damages were hard to estimate at time of contact
-MUST be reasonable–otherwise will be thrown out and construed as invalid [a “penalty”]
Entrustment
The transfer of goods to a merchant who ordinarily deals in that type of goods. If the merchant subsequently sells them to a good-faith third-party purchaser–original owner has no rights
Original owner can still sue
