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Flash Card - Contract

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1
Q

What law governs contracts for the Sale of Goods?

A

Article 2 of the Uniform Commercial Code.

*For mixed contracts the predominant purpose of the contract determines what law governs.

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2
Q

What are the elements of Mutual Assent?

A

1) Offer: A manifestation of present 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.

Bilateral contracts: performance manifests acceptance, Unilateral contracts: offer is accepted only when performance is complete.

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3
Q

Are advertisements considered offers?

A

No, BUT instead are deemed invitations for offers. It may be considered an offer if it includes sufficiently clear and definite terms so a reasonable person would understand how performance and acceptance may be completed.

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4
Q

What is the Mailbox Rule?

A

If the offeror mails a letter revoking, but the offeree sends a letter accepting BEFORE he receives the revocation, then a valid contract is created. This is because the acceptance was effective before the revocation.

Acceptance = once sent or communicated
Revocation = when received

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5
Q

When will conduct by the parties create a contract?

A

If:
1) The conduct is intentional; AND
2) Each party knows (or has reason to trust) that the other party will interpret the conduct as an agreement to enter into a contract.

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6
Q

Output Contract
vs.
Requirement Contract

A

Output: Requires a seller to sell all of the output of the particular goods to the buyer.

Requirement: Requires the buyer to purchase all of the particular good that the buyer requires from the seller.

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7
Q

When is an offer Terminated?

A

Offers may be terminated before acceptance by:
a) Revocation by offeror;
b) Rejection or Counter-offer by offeree;
c) Lapse of time;
d) Death / Incapacity of either party; OR
e) Supervening illegality.

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8
Q

When may an offer be revoked, and which types of offers are not revocable?

A

Offers 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.

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9
Q

What is a Merchant’s Firm Offer?

A

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.

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10
Q

Rejection vs. Counteroffer

A

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.

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11
Q

What is the Mirror Image Rule and UCC
exception?

A

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.

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12
Q

When is an agreement deemed Indefinite?

A

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.

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13
Q

What is Consideration?

A

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.

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14
Q

When does Promissory Estoppel apply?

A

Applies when:
1) A party reasonably and foreseeably relied to his detriment on the promise of the other party;
2) The promisor should have reasonably expected a change in position in reliance of the promise; AND
3) Enforcement of the promise is necessary to avoid injustice.

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15
Q

Settlement of Legal Claims

A

The voluntary relinquishment of some known right or privilege.

*Constitutes valid consideration.

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16
Q

What is the Common Law Pre-Existing Duty Rule?
What are the exceptions?

A

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;
b) Unforeseen circumstances – a fair and equitable modification is made due to unanticipated changed circumstance AND the contract is not yet fully performed by either party; OR
c) Third-party promise – the duty was owed to a third-person, not the promisor.

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17
Q

Is consideration required for a modification to a
UCC Art. 2 sale of goods contract?

A

NO, consideration is not required for contract modifications made in good faith.

BUT, the modification must be in writing if:
a) It falls within the Statute of Frauds; OR
b) The original contract states that modifications must be in writing.

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18
Q

Are contracts enforceable when entered into by
those who lack capacity?

A

A party MUST have capacity to enter into a contract, otherwise they are VOIDABLE.

Minors (under 18) and those who lack mental capacity lack the capacity to enter into a contract.

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19
Q

Duress

Physical Compulsion vs. Economic Duress

A

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 voidable.

*A mere threat to breach is generally insufficient.

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20
Q

Undue Influence occurs when?

A

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).

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21
Q

Mutual Mistake vs. Unilateral Mistake

A

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. (not a valid defense to formation)

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22
Q

Fraudulent Misrepresentation
vs.
Non-Fraudulent Misrepresentation

A

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.

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23
Q

Procedural Unconscionability
vs.
Substantive Unconscionability

A

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.

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24
Q

Under the Statute of Frauds, which types of contracts require a signed writing to be valid?

A

1) Marriage contracts.
2) Suretyships (unless the main purpose exception applies).
3) Contracts that cannot be fully performed in 1 year.
4) Contracts for the sale of 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.

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25
Q

In what situations will a contract that violates the
Statute of Frauds still be enforceable?

A

1) Full Performance;
2) Partial Performance in Land Contracts – need at least 2 of the following: (i) payment, (ii) took possession, (iii) made valuable improvements.
3) Judicial Acknowledgment: the party admits to the agreements in pleadings/testimony; OR
4) Estoppel: reasonable and foreseeable detrimental reliance on a promise (only some jurisdictions).

26
Q

Contracts for the sale of goods for $500 or more
MUST be in writing.

What are the four exceptions to this rule?

A

1) Merchant’s Confirmatory Memorandum.
2) Goods accepted or Paid for.
3) Custom Made Goods.
4) Admission during judicial proceeding.

27
Q

What satisfies the writing requirement under the
Statute of Frauds?

A

The writing MUST:
1) Be signed by the party to be charged;
2) Identify the subject matter of the contract;
3) Indicate that a contract has been made by the parties; 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.

28
Q

What are the exceptions to the Parol Evidence Rule?

A

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.

*Merger clause is evidence that the writing is complete on its face.

29
Q

What are the two instances where a Condition
Precedent may be excused?

A

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.

30
Q

What is a waiver, and when are conditions waived?

A

A voluntary and intentional relinquishment of a contract right by words or conduct (performance is excused when waived).
Condition is waived when:
1) A party indicated through words/conduct that a condition DOES NOT need to be satisfied; AND
2) The other party detrimentally relies on that waiver.

31
Q

How is good faith defined under the UCC?

A

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.

32
Q

Impossibility vs. Impracticability

A

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.

33
Q

When is performance excused under the Frustration of Purpose Doctrine?

A

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.

34
Q

Performance

Material Breach
vs.
Minor Breach

A

Material: WILL excuse the non-breaching party’s
performance. It occurs when a party does not render substantial performance.

Minor: WILL NOT excuse performance (the non-breaching party must perform, though they may bring a separate action for damages resulting from the breach).

35
Q

How do courts determine whether a breach is
material?

A

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.

36
Q

What is a time is of the essence clause?

A

It requires performance by a specific date, where failure to perform by said date is deemed a material breach.

Without this clause, failure to perform by a specified date is usually NOT deemed a material breach.

37
Q

When is a contract divisible?

A

When:
1) The performances to be exchanged can be divided into corresponding pairs of part performances,
2) In a way that the elements of each pair will be treated as if the parties had agreed they were equivalents.

*Both elements MUST be satisfied.

38
Q

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?

A

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.

39
Q

After the acceptance of goods, when may a buyer
later revoke that acceptance?

A

IF:
1) The non-conformity substantially impairs the value of the goods; AND
2) Either the defect was difficult to discover (latent) OR 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.

40
Q

When does an Anticipatory Repudiation occur?

A

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.

41
Q

When an Anticipatory Repudiation occurs, what
may a non-breaching party do?

A

a) Treat the contract as repudiated and sue for
damages;
b) Treat the contract as discharged;
c) Wait until performance is due and sue when
performance doesn’t occur; OR
d) Urge the party to perform.

42
Q

What is an Accord and Satisfaction?

A

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.

43
Q

When is an Express Warranty created?

A

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.

44
Q

What is the Implied Warranty of Merchantability?

A

Requires that all goods sold by a merchant MUST be fit for their ordinary purpose. To disclaim the implied warranty, a merchant must do so expressly with conspicuous language (oral or writing permitted).

*Merchant = person dealing in goods of the kind.

45
Q

The Warranty of Title includes what warranties?

A

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.

46
Q

Intended Third-Party Beneficiary
vs.
Incidental Beneficiary

A

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.

47
Q

When does an Intended Third-Party Beneficiary’s
rights vest?

A

When the beneficiary:
a) Manifests assent to the promise under the contact at the request of the contracting party;
b) Detrimentally relied on the contract; OR
c) Brings suit to enforce the contract.

*Once rights vest, a contract CANNOT be modified without the third-party’s consent.

48
Q

When may rights and benefits under a contract be transferred (assigned) to a third-party?

A

IF:
1) The assignor manifests his intent to transfer the rights; AND
2) The assignee assents to the assignment.

Consideration is NOT required but if provided makes the assignment irrevocable.

49
Q

When is an Assignment NOT valid?

A

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.

50
Q

Assignments

Prohibitions vs. Invalidations

A

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.

51
Q

Which prevails in:
Multiple Gratuitous Assignments
Multiple Assignments for Consideration

A

Gratuitous: The last ASSIGNEE prevails (unless it was irrevocable).

Consideration: The first assignment prevails, unless the later assignment:
1) Has no notice of the earlier assignment; AND
2) Is the first to obtain payment, a judgment, new contract from obligor, or indicia of ownership.

52
Q

When are contract duties not delegable?

A

a) The contract prohibits delegations/assignments;
b) The delegation is against public policy;
c) The contract is for personal services that call for the exercise of personal skill or discretion; OR
d) The delegation materially alters the expectancy of the obligee.

*An assignment generally includes a delegation of the unperformed duties under a contract.

53
Q

What are Expectation Damages?
When are they recoverable?

A

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.

54
Q

What are Consequential Damages?
When are they recoverable?

A

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 of (or should have known); AND
3) Certain (not speculative).

55
Q

Under the UCC, what remedies does a seller have if a buyer breaches a contract for the sale of goods?

A

a) Withhold delivery of the goods;
b) Cancel;
c) Recover cover damages;
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.

56
Q

Cover Damages
vs.
Market Damages
vs.
Loss-in-Value Damages

A

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).

57
Q

When will the Waste Doctrine apply?

A

IF:
1) The contractor performs in good faith, but defects nevertheless exist; AND
2) Remedying the defects would entail economic waste.

*In this instance, the decrease in value becomes the proper measure of damages.

58
Q

When is Restitution awarded?

A

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.

59
Q

When does a novation occur?

A

When:
1) All parties to a contract,
2) Agree to discharge an original party to the
contract, AND
3) Substitute a third party in the original party’s
place.

60
Q

What is Rescission?

A

Recession treats the contract as canceled.

*It is available if there was a problem with contract formation (defense to formation, fraud, misrepresentation).

61
Q

When will a contract NOT be rescinded?

A

IF:
a) A valid equitable defense applies; OR
b) The plaintiff sued for damages under the contract in a prior action.

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