K Flashcards
1st question you ask when confronted with contract question
what law applies
1) common law
2) sale of goods (UCC)
second question you ask when confronted w K question
was a contract formed
Contract needs:
mutual assent (offer +acceptance)
+ consideration
(- absence of defenses)
types of contract
express: formed by words
implied: formed by conduct
quasi contract remedy
restitution
A bilateral contract is one consisting of the exchange of mutual
promises; that is,
a promise for a promise. Each party is both a
promisor and a promisee.
A bilateral contract offer can be accepted
in
any reasonable way.
A unilateral contract is one in which the offeror requests
performance
rather than a promise.
A unilateral contract, which
requires full performance, occurs in only two situations:
(1) when the
offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and (2) where there is an
offer to the public, such as a reward offer.
“Goods” are
all things movable at the time they are identified as the
items to be sold under the contract.
Article 2 generally defines “merchant” as
one who regularly deals in goods of the kind sold or who otherwise
by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved
A void contract is
one that is totally without any legal effect from the
beginning (for example, an agreement to commit a crime). It cannot
be enforced by either party
A voidable contract is one that
one or both parties may elect to
avoid, such as by raising a defense that makes it voidable, like
infancy or mental illness.
An unenforceable contract is
otherwise valid but isn’t enforceable
due to a defense, such as the statute of limitations or Statute of
Frauds.
For a communication to
be an offer, it must
create a reasonable expectation in the offeree
that the offeror is willing to enter into a contract on the basis of the
offered terms.
In deciding whether a communication creates this
reasonable expectation, ask:
Was there an expression of a promise, undertaking, or commitment to enter into a contract?
Were there certainty and definiteness in the essential terms?
Was there communication of the above to the offeree?
Advertisements, catalogs, circular letters, and the like containing
price quotations are usually construed as
mere invitations for
offers.
An offer must be definite and certain in its terms. The basic inquiry is
whether
enough of the essential terms have been provided so that a
contract including them is capable of being enforced.
offers usually must include
offerees name, offers subj matter, price
land sale offers must include
1) price
2) description of land
sale of goods offer must include:
quantity term
requirements contract
Buyer promises to buy from seller all good buyer requires
output contract
seller promises to sell to buyer all goods seller produces
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.
1) lapse of time
offer terminated if not accepted within reasonable time
2) rejection
offer terminates when the offeree rejects it
counter offer =
mere bargaining =
conditional acceptance=
rejection
doesnt equal rejection
rejection+ new offer
revocation
offeror’s retraction of offer
offer revoked indirectly if
1) offeree receives correct info
2) from reliable source
3) of offeror’s acts indicating revocation
revocations effective upon
receipt
option contract
offeree gives consideration for offeror to not revoke offer for period of time
merchants firm offer rule
merchant promises
in signed writing
to keep offer open for time stated or reasonable time
***enforceable for up to 3 months
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, the offer will be held
irrevocable as an option contract
for a reasonable length of time.
start performance of unilateral contract offer=
irrevocable offer
mere preparation to perform does not equal
start of performance
The following events will terminate an offer by operation of law:
a. Death or insanity of either party (unless the offer is of a kind
the offeror could not terminate, such as, an option supported by
consideration). Death or insanity need not be communicated to
the other party
b. Destruction of the proposed contract’s subject matter OR
c. Supervening illegality
A unilateral contract is not accepted until
performance is completed
improper shipment =
acceptance and breach
The shipment of nonconforming goods is an acceptance creating
a bilateral contract as well as a breach of the contract unless
the
seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation
The buyer
is not required to accept accommodation goods and may reject
them. If the buyer rejects,
the shipper isn’t in breach and may
reclaim the accommodation goods, because the tender does not
constitute an acceptance of the buyer’s original offer.
Unless the offer provides otherwise, acceptance of an offer to enter
into a bilateral contract must be
communicated to the offeror
silence
does not equal acceptance
acceptance must ____ offer terms at common law
mirror
article 2: offerees additional term not part of K UNLESS
1) both are merchants
2) its not material and
3) offeror doesnt object
no mirror image rule under
article 2
material change?
causes hardship or surprise
If both parties to the contract are merchants, additional terms
in the acceptance will be included in the contract unless:
1) materially alter the original terms of the offer,
2) expressly limits acceptance to the terms of the offer
OR
3) offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received
mailbox rule
acceptance is effective when sent
industry custom is
not a material change
mailbox rule applies unless
1) offer states otherwise
2) offer is irrevocable
3) rejection sent before acceptance
forbearance can constitute ___
consideration
A promise given in exchange for something already done
does not
satisfy the bargain requirement
In general, courts ____ inquire into the adequacy or fairness of
consideration
do not
if something is entirely devoid of value
(token consideration),
it is insufficient.
preexisting legal duty rule
Traditionally, performing or promising to perform an existing legal
duty is insufficient consideration.
The preexisting legal duty rule is riddled with exceptions. There
is consideration if:
a) New or different consideration is promised;
b) The promise is to ratify a voidable obligation (for example, a
promise to ratify a minor’s contract after reaching majority or a
promise to go through with a contract despite the other party’s
fraud);
c) The preexisting duty is owed to a third person rather than to
the promisor;
d) There is an honest dispute as to the duty; OR
e) There are unforeseen circumstances sufficient to discharge a
party (such as impracticability), or under the modern view, if the
modification is fair and equitable in view of circumstances not
anticipated when the contract was made.
a good faith agreement modifying a contract subject to
the UCC needs____ to be binding.
no consideration
A debt can be discharged through an accord and satisfaction. In general, an accord must be supported by
consideration
Consideration is not necessary if the facts indicate that the promisor
should be estopped from not performing. A promise is enforceable if
necessary to prevent injustice if:
a. The promisor should reasonably expect to induce action or
forbearance, and
b. Such action or forbearance is in fact induced.
defendants w/o capacity can _____
disaffirm K
retaining benefits after gaining capacity =
implied affirmation
“Necessaries” are items necessary for subsistence, health, or
education (including food, shelter, clothing, and medical care).
A minor may disaffirm a contract for necessaries but will be
liable in _______ for the value of benefits received.
restitution
Contracts induced by ________are voidable and
may be rescinded as long as they are not affirmed.
duress or undue influence
If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware
no contract unless both parties intended
the same meaning;
If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
b. Both parties aware
no contract unless both parties intended
the same meaning;
If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
c. One party aware
binding contract based on what the ignorant
party reasonably believed to be the meaning of ambiguous
words.
If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract
may be voidable by the adversely affected party if:
(i) The mistake concerns a basic assumption on which the contract
is made (for example, the parties think they are contracting for
the sale of a diamond but in reality the stone is a cubic zirconia);
(i) The mistake concerns a basic assumption on which the contract
is made (for example, the parties think they are contracting for
the sale of a diamond but in reality the stone is a cubic zirconia);
(ii) The mistake has a material effect on the agreed-upon
exchange (for example, the cubic zirconia is worth only a
hundredth of what a diamond is worth);
AND
(iii) The party seeking avoidance did not assume the risk of the
mistake
If only one of the parties is mistaken about facts relating to the
agreement, the mistake will not prevent formation of a contract. But,
if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is
voidable by the mistaken
party. As with mutual mistake, the mistake must have a material effect
on the agreed-upon exchange, and the mistaken party must not have
borne the risk of the mistake.
The concept of ______allows a court to modify or refuse to
enforce an entire contract or a provision in it to avoid “unfair” terms,
usually due to some unfairness in the bargaining process (that is,
procedural unconscionability). Unfair price alone is not a ground for _____
unconscionability
unconscionability test
unfair surprise and oppressive terms
**tested when K formed
statute of frauds
when is writing reqd
when is oral k not enough
statute of frauds categories
Marriage
Year
Land Sales
Executors
Goods for $500
Sureties
(my legs)
marriage
k where marriage is consideration
doesnt include promise to marry
K’s impossible to complete in _____ subj to state of frauds
1 year
**time of actual performance doesnt matter
A promise creating an interest in land must be evidenced by a
writing. This includes not only agreements for the sale of real
property, but also:
- Leases for more than one year
- Easements of more than one year
- Mortgages and most other security liens
- Fixtures
- Minerals (or the like) or structures if they are to be severed by
the buyer
A promise by an executor or administrator to pay the estate’s debts
out of _____ must be evidenced by a writing.
their own funds
A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person’s promise to pay, and not a primary promise to pay.
However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is
not within the Statute of Frauds even though
the effect is still to pay the debt of another (for example, homeowner promises to pay contractor’s debt to building supplier if contractor does not pay, so contractor can obtain supplies to work on homeowner’s house).
modifications must be in writing only if
modified k within Statute
clauses prohibiting oral modification
unenforceable in common k’s
enforceable in art 2 k’s
land sale exceptions
lease of less than or equal to 1 year
part performance of real estate Ks
-payment, possession, improvement
-need 2 of 3
exception for service ks
full performance K satsifies statute of frauds
**no part performance exception for service ks
sale of goods exception
goods accepted
goods paid for
substantial beginning on custom goods
judicial admissions exception
agreement admitted to under oath enforceable w/o writing
merchants confirmatory memo
merchants
agree to K
one party sends signed writing containing quantity terms
no objection by recipient w/in 10 days
K for sale of goods $500+ must have
quantity term
D’s signature
k for services must include
all material terms
D’s signature
When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an ________ ” Any other expressions—written or oral—made prior to the writing, as well as any oral expressions
contemporaneous with the writing, are inadmissible to vary the terms of the writing.
the writing is an “integration.”
Is the Writing an “Integration”?
There are two components:
(1) whether the writing was intended as
the final expression of the agreement; and
(2) whether the integration
was intended to be complete or partial.
Evidence is admissible to show the parties’ intent
exceptions to Parol Evidence Rule
partially integrated writing
defense against formation
explain vague term
correct clerical error
course of perfromance
parties conduct under prior installments of current contract
course of dealing
parties conduct in prior contracts
trade usage
industry norms parties are aware of
any description of the goods, and any sample or model creates an
_______if the statement, description, sample, or model
is part of the basis of the bargain.
express warranty
implied warranty of merchantability
goods fit for ordinary forseeable purpose
implied warranty of fitness for particular purpose
buyer comes in w special purpose
seller knows of special purpose
sellers picks out goods fit for buyers special purpose
as is or with all faults serve to
disclaim all implied warranties
Parties may include in their contract a clause limiting the
damages available in the case of breach of warranty (for
example, “remedy for breach of warranty is limited to repair
or replacement of the defective goods”). However, such a
limitation won’t be upheld if it’s ______
unconscionable
If the buyer has a right to reject the goods, the risk of loss
doesn’t pass to the buyer until
the defects are cured or the
buyer accepts the goods in spite of their defect
All contracts for the sale of goods require delivery of the goods.
A contract’s delivery terms are important because they determine
when risk of loss passes from the seller to the buyer if the goods are
damaged or destroyed
(common carrier) risk of loss shifts from seller to buyer when _____
seller completes its delivery obligations
shipment contract. (assume this)
seller delivers goods to common carrier
arranges for delivery and
notifies buyer
risk of loss passes to buyer on delivery to carrier
destination k
seller must deliver goods to buyers location
common law k
substantial performance is enough, meets k’s essential purpose
Article 2 generally requires____—the delivery and condition of the goods must be exactly as promised in the contract.
a perfect tender
installment ks
req delievry of goods in sep installments over specified period
The buyer has a right to inspect the goods before they pay unless
the
contract provides for payment C.O.D. or otherwise indicates that the
buyer has promised to pay without inspecting the goods.
A contract may provide that a party does not have a duty to perform
unless some condition is fulfilled. In that case, the party’s failure to
perform is justified if
the condition was not fulfilled.
express conditions must be
perfectly satisfied
f the contract involves personal taste or personal judgment
(for example, portraits, dental work), a condition of satisfaction
is fulfilled only if the promisor is personally satisfied. But note:
Even if a condition requires personal satisfaction, a promisor’s
lack of satisfaction must be honest and in good faith.
A condition precedent is one that must occur____ an absolute duty
of immediate performance arises in the other party.
before
conditions subsequent
events after performance that could terminate duty to pay
if a party having a duty of performance that is subject to a condition
(that is, the party protected by the condition) prevents the condition from occurring, the condition will be excused if
the prevention
is wrongful (meaning, the other party would not have reasonably
contemplated or assumed the risk of this type of conduct).
waiver of condition
voluntary giving up of conditions protection
anticipatory repudiation
early statement of non performance
repudiations can be ____ if not relied on
retracted
failure to give adequate assurances
party may ask for assurance other party will perform
if assurance not received= anticipatory repudiation
cannot use adequate assurance provision to rewrite K or demand certain assurance only entitled to
adequate assurance
rescission
partys mutual agreement to cancel k
each party must have some performance remaining for effective recession
modification
replace existing k terms w new terms immediately
tip: debt excused immediately
accord and satisfaction
agreement to accept different performance to satisfy existing duty
tip: debt excused later
novation
agreement to substitute new party for existing party
delegation
one party finds replacement party to perform
original partys obligations not excused
impossibility/ impracticability
later unforeseen event makes partys performance impossible
death or incapacity of essential person to K ___
excuses performance
if performance made illegal by subsequent govt regulation ____
performance excused
destruction of K’s subj matter
excuses performance
frustration of purpose
both parties understood the central purpose
performance excused if k;s essential purpose undermined
A
novation will serve to discharge the old contract. The elements for
a valid novation are:
(1) a previous valid contract; (2) an agreement
among all parties, including the new party (or parties) to the new
contract; (3) the immediate extinguishment of contractual duties as
between the original contracting parties; and (4) a valid and enforceable new contract
when does a breach occur
If it is found that (1) the promisor is under an absolute duty to
perform, and (2) this absolute duty of performance has not
been discharged, then this failure to perform in accordance with
contractual terms will amount to a breach of the contract.
If the obligee does not receive the substantial benefit of their
bargain, the breach is considered material. If the breach is material,
the nonbreaching party
(1) may treat the contract as at an end; that is,
any duty of counterperformance owed by them will be discharged,
and (2) will have an immediate right to all remedies for breach of the
entire contract, including total damages
In determining whether a breach is material or minor, courts look at:
a. The amount of benefit received by the nonbreaching party
b. The adequacy of compensation for damages to the injured
party
c. The extent of part performance by the breaching party
d. Hardship to the breaching party
e. Negligent or willful behavior of the breaching party AND
f. The likelihood that the breaching party will perform the
remainder of the contract
If a minor breach is coupled with an anticipatory repudiation (see
6.4.6), the nonbreaching party may treat it as a material breach; that
is, they may
sue immediately for total damages and are permanently
discharged from any duty of further performance.
The UCC modifies this to
permit a party to complete the manufacture of goods to avoid having
to sell unfinished goods at the lower salvage value.
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, or if the contract expressly provides that
time is of the essence, then failure to perform on time is
usually a
material breach.
Article 2 generally doesn’t follow the common law substantial performance doctrine. Instead, it follows the 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.
A buyer’s right to reject under the perfect tender doctrine generally is
cut off by acceptance. Under Article 2, a buyer accepts when:
After a reasonable opportunity to inspect the goods, they
indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to
conform;
They fail to reject within a reasonable time after tender or
delivery of the goods or fail to seasonably notify the seller of
their rejection; OR
They do any act inconsistent with the seller’s ownership.
The buyer may revoke their acceptance if the goods have a defect that
substantially impairs their value to the buyer and:
They accepted the goods on the reasonable belief that
the defect would be cured and it has not been OR
They accepted the goods because of the difficulty of
discovering the defects or because of the seller’s assurance that the goods conformed to the contract.
Revocation of acceptance must occur:
(1) within a reasonable time
after the buyer discovers or should have discovered the defects;
and (2) before any substantial change in the goods occurs that is
not caused by a defect present at the time the seller relinquished
possession
If the buyer has rejected goods because of defects, the seller
may within the time originally provided for performance “cure”
by
giving reasonable notice of their intention to do so and
making a new tender of conforming goods that the buyer must
then accept.
If the legal remedy (that is, money damages) is inadequate, the
nonbreaching party may seek
specific performance, which is an order
from the court to the breaching party to perform or face contempt of
court charges.
Specific performance is always available for land sale contracts,
because
all land is unique
Most courts will grant an order of specific performance to enforce
a contract not to compete if:
(1) the services to be performed are
unique (thus rendering money damages inadequate); and (2) the
covenant is reasonable.
for covenant not to compete to be reasonable…
The covenant must be reasonably necessary to protect
a legitimate interest of the person benefited by the
covenant (that is, an employer or the purchaser of the
covenantor’s business);
The covenant must be reasonable as to its geographic
scope and duration (meaning, it cannot be broader than
the benefited person’s customer base and typically cannot
be longer than one or two years); and
The covenant must not harm the public.
In addition to standard contract defenses, an action for specific
performance is subject to the equitable defenses of:
Laches—a claim that the plaintiff has delayed bringing the
action and that the delay has prejudiced the defendant;
Unclean hands—a claim that the party seeking specific
performance is guilty of wrongdoing in the transaction
being sued upon; and
Sale to a bona fide purchaser—a claim that the subject
matter has been sold to a person who purchased for
value and in good faith.
If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the
seller has not delivered the goods, the buyer may replevy the
goods from the seller in two circumstances:
(i) The seller becomes insolvent within 10 days after receiving
the buyer’s first payment; or
(ii) The goods were purchased for personal, family, or household purposes.
In either case, the buyer must tender any unpaid portion of the
purchase price to the seller.
In addition, the buyer may replevy undelivered, identified
goods from the seller if the buyer, after reasonable effort, is
unable to secure adequate substitute goods (that is, cover).
A right closely related to the buyer’s right to replevy is the right
to specific performance “where the goods are unique or in other
proper circumstances.” The court may order specific performance even where
the goods have not yet been identified to
the contract by the seller
If a seller learns that a buyer has received delivery of goods
on credit while insolvent, the seller may reclaim the goods
upon demand made within
10 days after the buyer’s receipt of
the goods. However, the 10-day limitation does not apply if a
misrepresentation of solvency has been made in writing to the
particular seller within 3 months before delivery.
Actions or circumstances that increase the risk of nonperformance by
a party to a contract but don’t clearly indicate that performance will
not be forthcoming may not be treated immediately as an anticipatory repudiation (see 8.2.2.b. below). Instead, if there are reasonable
grounds for insecurity with respect to a party’s performance, the
other party may
demand in writing assurances that the performance
will be forthcoming at the proper time.
Until they receive adequate
assurances, the party may suspend their own performance.
If the
proper assurances are not given within a reasonable time (that is,
within 30 days after a justified demand for assurances),
they may
then treat the contract as repudiated.
Reliance damages award the plaintiff the cost of
their performance; that is, they are designed to
put the plaintiff
in the position that would have been in had the contract never
been formed.
Compensatory damages may also include incidental damages.
Incidental damages are most commonly associated with
contracts for the sale of goods and typically include
expenses
reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other
expenses reasonably incident to the seller’s breach, and by the
seller in storing, shipping, returning, and reselling the goods as
a result of the buyer’s breach.
Consequential damages are special damages and reflect losses
over and above standard expectation damages. They arise
because of the nonbreaching party’s particular circumstances,
and most often they consist of lost profits. These damages
may be recovered only if, at the time the contract was made,
a reasonable person would have foreseen the damages as a
probable result of a breach. Foreseeability is the key issue for
consequential damages. To recover consequential damages,
the breaching party must have known or had reason to know
of the special circumstances giving rise to the damages. Note
that in contracts for the sale of goods, only a buyer may recover
consequential damages.
The parties to a contract may stipulate what damages are to be paid
in the event of a breach. These liquidated damages must be
in an
amount that is reasonable in view of the actual or anticipated harm
caused by the breach
Liquidated damage clauses will be enforceable if the following
two requirements are met:
a) Damages for contractual breach are difficult to estimate or
ascertain at the time the contract is formed; and
b) The amount agreed on is a reasonable forecast of compensatory damages in the case of breach.
The test for reasonableness
is a comparison between the amount of damages prospectively
probable at the time of contract formation and the liquidated
damages figure.
If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not
enforce the provision.
If the seller doesn’t deliver, or the buyer properly rejects the
goods or revokes acceptance of the goods, the buyer’s basic
damages consist of the difference between the contract price
and either:
(1) the market price or (2) the cost of buying replacement goods (cover), plus incidental and consequential damages,
if any, less expenses saved as a result of the seller’s breach.
If the buyer measures damages by the difference between
contract price and market price, market price usually is determined as of
the time the buyer learns of the breach and at the
place of tender.
If the buyer accepts goods that breach one of the seller’s
warranties, the buyer may recover as damages “loss resulting
in the normal course of events from the breach.” The basic
measure of damages in such a case is
the difference between
the value of the goods as delivered and the value they
would have had if they had been according to contract, plus
incidental and consequential damages.
To recover damages for any defect as to accepted goods, the
buyer must,
within a reasonable time after they discover or
should have discovered the defect, notify the seller of the
defect. If they do not notify the seller within a reasonable time,
they lose their right to sue. “Reasonable time” is, of course, a
flexible standard
The measure of damages when the seller anticipatorily
breaches the contract is the difference between
the market
price at the time the buyer learned of the breach and the
contract price.
As noted above, a seller is liable for consequential damages
arising from their breach if:
(1) they had reason to know of the
buyer’s general or particular requirements, and (2) the subsequent loss resulting from those needs could not reasonably be
prevented by cover. Particular needs must be made known to
the seller, but general requirements usually need not be.
The Code provides three measures for damages for when the
buyer wrongfully repudiates or refuses to accept conforming
goods. In addition to incidental damages (for example, costs of
storing, shipping, reselling), the seller can:
(i) Resell the goods and recover the difference between the
contract price and the resale price
(ii) Recover the difference between the market price
(measured as of the time and at the place of delivery) and
the contract price, or
(iii) If the above measures are inadequate because the seller
could have made an additional sale, recover under a “lost
profits” measure the difference between the contract price
and the cost to the seller.
If the buyer has accepted the goods and has not paid, or has
not accepted the goods, and the seller is unable to resell
them at any reasonable price, or if the goods have been lost or
damaged at a time the risk of loss was on the buyer, the seller
may
maintain an action against the buyer for the full contract
price.
The standard measure of damages for breach of land sale contracts
is the difference between the
contract price and the fair market
value of the land.
