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MBE Bar Studies > K & Sales > Flashcards

K & Sales Flashcards

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1
Q

K

A

A legally enforceable agreement or promise
• The law recognizes a duty to perform and provides a
remedy in the event of a breach

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2
Q

Unilateral K Revocation

A

Start of performance makes the offer irrevocable for a reasonable time to complete performance
» Start of performance must go beyond mere preparation

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3
Q

Bilateral K

A

Anything other than a unilateral contract (promise for a promise)

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4
Q

Quasi K

A 
Not a K, more like an equitable remedy
• Usually arises when there is an unenforceable agreement,
but one side has realized a benefit
Look for:
1) P has conferred a benefit to D
2) P reasonably expects to be paid
3) D knowingly accepted the benefit
4) D will be unjustly enriched if P is not compensated
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5
Q

Void K

A

K never had any legal effect

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6
Q

Voidable K

A

One party may elect to void the K

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7
Q

Applicable Law CL

A

Applies to most Ks, except sales of goods
• Any K not involving the sale of goods should be treated
under common law contract principles

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8
Q

Applicable Law UCC

A

Governs the sale of goods
• If both parties to a K are merchants, the UCC has additional special rules (e.g., perfect tender, acceptance with additional terms)

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9
Q

Mixed K

A

For Ks involving both goods and services, the predominant purpose of the K dictates the applicable law
• Exception — if K terms divide payment between the goods
and the services, apply the UCC to the sale of goods portion of the K and common law to the remainder

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10
Q

Offer

A

An objective manifestation of a present intent to contract
• Demonstrated by a promise, undertaking, or commitment;
definite and certain terms; and communication to an offeree
• Creates power of acceptance in the offeree

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11
Q

Objective Manifestation of Intent

A

Offer must give offeree a reasonable expectation that offeror is willing to enter into a K
• Would a reasonable person believe that the communication
is an offer inviting acceptance?

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12
Q

Definite and Certain Terms

A

Not all material terms are required
• Terms must only be sufficient to allow enforcement of the K
• Vague terms or terms of negotiation are not allowed

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13
Q

UCC Offer

A

Quantity must be certain or capable of being

made certain

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14
Q

Requirement/Output K

A

May state quantity of goods in terms of the buyer’s requirements, the seller’s output, or in terms of exclusivity
• No unreasonably disproportionate increase in quantity is allowed

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15
Q

Communication to an identified offeree

A

Offeree must know of the offer and have the power to accept it

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16
Q

Ads as Offers

A

Generally not offers, unless highly specific as to quantity and clearly indicate who may accept

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17
Q

Revocation

A

An offeror may revoke her offer, which effectively terminates the offer and the offeree’s power of acceptance

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18
Q

Methods of revocation

A

1) Unambiguous statement by the offeror to the offeree
2) Offeree becomes aware of offeror’s unambiguous conduct or statement indicating an unwillingness or inability to contract

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19
Q

Limitations on Revocation

A

Revocation is only effective upon receipt by offeree

• An offer cannot be revoked once it has been accepted

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20
Q

Irrevocable Offers

A

Offer is irrevocable if:
a) Option K — promise to keep an offer open
• Requires consideration in exchange for the option
b) UCC firm offers — if a merchant offers to sell goods in a signed writing and gives assurances that the offer will be held open, it is irrevocable for up to three months
• No consideration is required
c) Detrimental reliance by offeree — reliance must be reasonable

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21
Q

Rejection of Offer

A

Rejection by offeree terminates the offer and the offeree’s power of acceptance

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22
Q

Counteroffer

A

Terminates the original offer and becomes a new offer; bargaining is not a counteroffer
» If response to an offer is a statement — counteroffer
» If response to an offer is a question — bargaining

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23
Q

Conditional Acceptance

A

Terminates the original offer and becomes a new offer

» Indicated by terms such as “if,” “only if,“ “but,” “provided,” “so long as,” “on condition that,” etc.

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24
Q

CL Acceptance

A

Acceptance must mirror the offer’s terms; it cannot omit or add new terms

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25
Q

UCC Addt’l Terms

A

An acceptance that proposes additional or different terms is valid, giving rise to an enforceable K, unless the acceptance expressly requires assent to the different or additional terms
» Both parties are merchants — additional terms become part of the K unless they materially change the offer or the offeror objects within a reasonable time

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26
Q

UCC Acceptance by Prompt Shipment

A

A merchant may accept an offer to buy goods by either:
a) Providing a promise to ship goods (usually by written confirmation), or
b) Promptly shipping conforming goods
• Shipment of nonconforming goods may give rise to breach

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27
Q

Mailbox Rule Offer

A

Effective upon receipt

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28
Q

Mailbox Rule Acceptance

A

Effective upon dispatch

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29
Q

Silence as Acceptance

A

Generally silence is not an acceptance unless (1) the offeree has reason to believe the offer could be accepted by silence, was silent, and intended to accept by silence or (2) based on prior dealings, it is reasonable to believe the offeree must notify the offeror if there is an intent not to accept.

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30
Q

Exceptions to Mailbox Acceptance Rule

A

1) A requirement that the terms of the offer control
2) An option contract is effective upon receipt; not dispatch
3) If an acceptance and a rejection is sent and the rejection is sent first, then acceptance controls if it is received first. If the acceptance is sent first, then the acceptance controls.

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31
Q

Acceptance by Performance

A

An offeree may accept by partial performance (for bilateral Ks)
or complete performance (for unilateral Ks), unless acceptance is limited by terms of the offer

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32
Q

Consideration

A

A bargained-for legal detriment incurred by each party to a K by promise, forbearance, or performance

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33
Q

Bargained-for Legal Detriment

A

• The promise must induce the detriment and the detriment
must induce the promise
• Legal detriment — obligation to do or refrain from doing
something one would not otherwise be obligated to do or
refrain from doing
• Pre-existing legal duty — a promise to perform a preexisting legal duty is not valid consideration, unless there is a
new written promise to fulfill a debt obligation (see below)

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34
Q

Reliance/Estoppel

A

Courts may enforce a promise if:

1) Promisor reasonably expects reliance by promisee
2) Promisee acts or refrains from acting such that his reliance is detrimental
3) Injustice will occur without enforcement of the promise

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35
Q

UCC Modification

A

Consideration is not necessary for good-faith written modifications to a K governed by the UCC

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36
Q

Incapacity

A

Infants and mentally incompetent persons lack capacity to
contract
• Intoxication — intoxicated persons may lack capacity to
contract if the other party has reason to know of intoxication

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37
Q

Consequences of Incapacity

A

Right to disaffirm — person who lacked capacity to contract
(i.e., infant) may disaffirm the K, which renders it void

Implied affirmation (ratification) — a K can be enforced
against an infant at the time of K formation if she has since
gained capacity and retained benefits of the K

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38
Q

Infant Liability for Necessities

A

Infants are legally obligated to pay for necessities (e.g., food, clothes, medical care)

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39
Q

K Required under SoF

A

1) Marriage Ks — promises made in consideration of marriage
2) Service Ks incapable of being performed within 1 year
» SoF does not apply to: “lifelong” deals or Ks that say nothing about time for performance — both are technically capable of performance within one year
3) Land-related Ks — transfers of property interests, including
leases for terms greater than one year
4) Executor promises — promises by executors/administrators to personally answer for the debts of the decedent’s estate
5) Guarantees — promises to pay the debt of another
6) Sales of goods of $500 or more

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40
Q

Requirements of SoF

A

Writing
Essential Terms
Signed by party against who the claim is being asserted

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41
Q

Exceptions to SoF

A

Service K — only full performance satisfies the SoF
» Sale of goods K — delivery of goods satisfies the SoF
• Custom-made goods — SoF satisfied once seller
makes a substantial beginning toward performance
» Real estate — part performance by the buyer satisfies
SoF if buyer has done two of the following three:
a) Full or part payment
b) Possession of property
c) Improvements to property

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42
Q

Illegality

A

Look for an illegal subject matter or purpose for the K
• Illegal subject matter — K is not enforceable
• Legal subject matter but illegal purpose — K only enforceable
by one who did not know about its illegal purpose
• Legality is based on the existing law at the time of K formation

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43
Q

Misrepresentation

A

Includes false assertions, concealment, or misstatements about a material fact before K formation
• K will be voidable if A induces B into a K by misrepresentation and B relies on the misrepresentation

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44
Q

Duress

A

Includes both economic and physical duress

• Ks induced by duress or coercion are voidable

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45
Q

Unconscionability

A

Courts may refuse to enforce all or part of a K that is either:
a) Procedurally unconscionable — usually involves unfair surprise (e.g., a new material term)
b) Substantively unconscionable — usually involves oppressive terms, which are often hidden
» Arises with contracts of adhesion, exculpatory clauses for intentional acts, etc.

46
Q

Mutual Mistake

A

Both parties are mistaken about an
underlying factual assumption at the time of K formation
• K is void if:
1) Both parties are mistaken
2) Mistake concerns a basic assumption of fact
3) Mistake materially affects the agreed-upon exchange
4) Adversely affected party did not bear risk of the mistake

47
Q

Unilateral Mistake

A

Only one party is mistaken concerning
underlying facts of the agreement
• Unilateral mistake will not prevent K formation
• Exception — K is voidable if the non-mistaken party knows
or should have known of the other party’s mistake

48
Q

Parol Evidence

A

Evidence extrinsic to a written agreement is inadmissible to
supplement or contradict the written agreement
• Applies if the writing is a complete integration — parties
must intend the writing to express their final agreement

49
Q

Statements barred by Parol Evidence

A

• Negotiations before K becomes integrated
• Agreements before K becomes integrated (oral or written)
• Exceptions — parol evidence will be allowed if either:
a) Agreement was only partially integrated, or
b) Additional terms would ordinarily be in a separate
agreement

50
Q

Allowances under Parol Evidence

A

• Evidence of oral agreements made after the writing
• Evidence necessary to determine if there was a mistake in
the process of reducing an agreement to writing
• Evidence concerning a party’s defense based on
misrepresentation, fraud, or duress
• Evidence used to resolve ambiguities about the meaning
parties intended to give particular terms in the writing

51
Q

Shipment K

A

Indicated by “FOB — [seller’s city]”
» Seller’s delivery obligation is satisfied when seller:
1) Delivers goods to a common carrier
2) Makes reasonable arrangements for delivery
3) Notifies the buyer
» Once complete, risk of loss passes to the buyer

52
Q

Destination K

A

Anything not “FOB — [seller’s city]”
» Seller’s delivery obligation is complete only when goods
arrive at buyer’s location

53
Q

Risk of Loss

A

Arises if goods are lost or destroyed by no fault of either party
after K formation but before buyer receives the goods

54
Q

Factors for Risk of Loss

A

(in order of priority)
1) Prior agreement of the parties
2) Breach — breaching party is liable for any uninsured loss, even if unrelated to the breach
3) Common carrier — risk shifts to buyer once seller completes delivery obligations
4) Default — apply if the above factors are inapplicable
• Merchant seller — risk of loss shifts to buyer once he takes physical possession of goods
• Non-merchant seller — risk of loss shifts to buyer upon tendering delivery

55
Q

Express Warranty

A

When seller makes promises or describes facts about a product or its use
• Warranty will be breached if the product falls short of the
seller’s promise or description

56
Q

Implied Warranty of Merchantability

A

Merchant selling goods automatically warrants goods are fit for their ordinary purpose

57
Q

Implied Warranty of Fitness for Particular Purpose

A

Seller warrants that goods are fit for buyer’s purpose if:

1) Buyer has a particular purpose
2) Buyer relies on seller to select suitable goods
3) Seller has reason to know of buyer’s purpose and reliance on seller

58
Q

Disclaimer in K

A

Limits liability only for implied warranties
» “As is” or “with all faults” language is enforceable
» Disclaimers will not limit liability for express warranties

59
Q

Remedy Limitation

A

Limits recovery upon breach of warranty
» Generally valid for all warranties, unless the provision
is unconscionable (e.g., breach causes serious injury)

60
Q

UCC Perfect Tender

A

Buyer can retain or reject nonconforming goods
• If seller’s performance is not perfect, buyer can either:
a) Retain goods delivered and sue for damages, or
b) Reject some or all goods and sue for damages

61
Q

UCC Rejection

A

Buyer must notify seller of rejection in a reasonable time
• Buyer must hold the rejected goods using reasonable care
• Buyer must give seller reasonable time to arrange for removal of the goods
» If seller gives no information regarding removal, buyer can return the goods to seller, store the goods for seller, or resell the goods on behalf of seller (i.e., for seller’s profit)

62
Q

UCC Acceptance

A

a) Buyer, after a reasonable opportunity to inspect the goods,
indicates to seller that the goods conform or that he will keep them despite their nonconformance
» Payment without an opportunity to inspect is not acceptance
» If buyer accepts goods, he cannot later reject them
b) Buyer fails to reject or notify seller of rejection within a
reasonable time (no more than one month)

63
Q

UCC Revocation of Acceptance

A

• Buyer generally cannot reject goods once he has accepted
• Exceptions — buyer can revoke acceptance if:
1) The nonconformity substantially impairs the value of the goods
2) Buyer is excusably ignorant of the grounds for revocation or reasonably relies on the seller’s assurance of satisfaction
3) Buyer revokes within a reasonable time after discovering a nonconformity

64
Q

UCC Seller Right to Cure

A

1) Time for performance has not yet expired OR
2) Seller had reasonable grounds to believe the nonconforming goods sent would be acceptable
» Reasonableness is usually based on seller’s prior
dealings with buyer
3) Seller gives buyer notice of intent to cure
» Seller must give buyer reasonable notice and deliver conforming goods
Note — buyer cannot compel seller to cure

65
Q

Installment K

A

Authorizes or requires delivery of goods in

separate lots

66
Q

Rejection of Installment

A

Buyer can only reject a delivery/installment if:
1) Nonconformity substantially impairs the installment
2) Nonconformity cannot be cured
• Rejection is limited to the nonconforming installment, not
the entire K
» Buyer can only cancel the entire K based on a nonconforming installment if that installment substantially impairs the value of the entire K

67
Q

CL Substantial Performance

A

If one party has substantially performed, the other party is obligated to perform and complete performance
• I.e., less than perfect performance by one party does not
excuse the other party from his obligation
• “Substantial” is usually considered at least halfway complete
• Thus, substantial performance by A obligates B to perform;
but B may seek money damages for the difference between
the performance rendered and the performance expected

68
Q

CL Material Breach

A

• Material breaches by the other party excuse performance
• Substantial breach ≠ material breach
• Materiality of breach is a question of fact (and thus unlikely
to be tested on the MBE)
• Damages are recoverable for any breach

69
Q

CL Timeliness of Performance

A

Failure to perform by the time stated in a K is not a material
breach if performance is rendered within a reasonable time
after the time stated
• Exception — “time is of the essence” clauses
» If timely performance is essential, failure to perform by that time is a material breach
» Arises if one party indicates as a term of the K that performance by a given date is essential

70
Q

Condition of K

A

Conditions are agreed-upon limitations on performance
• I.e., conditions make an obligation to perform contingent on
the occurrence of some specific event or condition

71
Q

Condition Precedent

A

Performance is not obligated unless the condition occurs; non-occurrence excuses performance

72
Q

Condition Subsequent

A

A condition that occurs after

performance has begun and excuses further performance

73
Q

Excuse of Condition

A

If a condition exists, it must be strictly complied with; but substantial performance of the condition may suffice if it fulfills the condition’s purpose

74
Q

Insecurity

A

Excuse by insecurity arises if A gives B reasonable grounds for insecurity or uncertainty (e.g., by words or conduct) regarding whether A will perform under the K
• Grounds for insecurity or uncertainty must be reasonable

75
Q

Demand for Adequate Assurances

A

If party is insecure, she may
1) Demand adequate assurances
2) Suspend performance (if commercially reasonable) until
she receives adequate assurances
3) Treat the K as repudiated if she does not receive adequate
assurances within 30 days

76
Q

Anticipatory Repudiation

A

Arises if one party to a K (the repudiating party):

1) Makes an unambiguous statement or conduct
2) Prior to the time performance is due
3) Which indicates he (i.e., repudiating party) will not perform

77
Q

Effect of Anticipatory Repudiation

A

If repudiation occurs, the non-repudiating party’s duty to
perform is excused; he may treat the K as breached and sue
» E.g., A hires B to remodel A’s kitchen. B is almost
finished with the remodel when A tells B she does not
want the remodel and will not pay B
• Anticipatory repudiation can be reversed or retracted if
the non-repudiating party has not materially changed his
position

78
Q

Impossibility

A

Performance is objectively impossible

79
Q

Commercial Impracticability

A

Performance is only possible with extreme and unreasonable difficulty or expense

80
Q

Mutual Rescission

A

Mutual cancellation of a K
• Arises if some performance obligation remains for each
party and they both agree to rescind the K
• Agreement to rescind is itself a new K that excuses further
performance for both parties on the original K obligations
• Consideration required, unless the K is governed by the UCC
» UCC — no consideration required for good-faith modifications

81
Q

Modification

A

Substitute agreement
• Parties to a K agree to accept a new agreement in satisfaction of the existing K
• Distinguish accord and satisfaction:
» Under accord and satisfaction, satisfying the accord is a condition for fulfillment of the original K obligations
» Modification is a new agreement replacing the old K

82
Q

Novation

A

Parties agree to substitute a new party to perform
• The original party is excused from performance and no
longer has any K obligations

83
Q

Accord

A

Agreement to accept alternative performance in

satisfaction of the existing obligation

84
Q

Satisfaction

A

Completion of the alternative performance

85
Q

Effect of Accord & Satisfaction

A

Excuses the original obligation
» If the accord is not satisfied, a party may sue on
either the original obligation or the accord

86
Q

Third Party Beneficiary

A

If two parties contract with some intent of benefiting a third
party, that third party is a third-party beneficiary (TPB)

87
Q

Incidental Beneficiary

A

If a third party does not meet the above, she is an incidental beneficiary and does not have any rights under the K

88
Q

Vesting of TPB Rights

A

Occurs when either:
a) The TPB assents to the promise in a manner requested by
the parties to the K
b) The TPB brings suit to enforce the promise
c) The TPB materially changes position in justifiable reliance
on the promise

89
Q

TPB Enforcing the K

A

TPB can sue promisor
» Promisor can assert any of his own defenses
» Promisor can assert any of the promisee’s defenses if
promisor made an absolute promise to pay
• Promisee can sue promisor at law and in equity for specific
performance
• TPB can only sue promisee if TPB is a creditor beneficiary

90
Q

Assignment of K

A

A transfer of rights to a third party after a K is formed

• Consideration is not required

91
Q

CL Limitations on Assignment

A

Common law bars assignments that substantially change
the duties of the obligor
» Assignment of payment is not a substantial change
» Assignment of rights to performance is a substantial
change

92
Q

K Limitations of Assignment

A

• K provisions prohibiting assignments — take away the right
to assign, but not the power to assign
» I.e., an assignee can still enforce the assignment if he was unaware of the provision
• K provisions invalidating assignments — take away both the right and power to assign
» I.e., any assignment is invalid and unenforceable

93
Q

Enforcement of Assignment

A

An assignee can recover from the obligor
• An assignor for consideration cannot recover from the obligor
• Payment by the obligor to the assignor is effective until obligor knows of the assignment

94
Q

Delegation of K

A

Generally, all duties may be delegated, subject to exceptions
Delegator must simply manifest a present intent to delegate

95
Q

Enforcement of Delegation of K

A

• Obligee must accept performance from delegee
• Obligee may sue delegator for non-performance by delegee
• Obligee may only sue delegee if the delegee has assumed
duties of the entire K

96
Q

Non-Delegable Duties

A

a) Duties involve personal judgment and skill
b) Delegation changes the expectancy in a requirement or
output K
c) A party has placed special trust in the delegator
d) A contractual provision restricts delegation

97
Q

Specific Performance

A

Only available for Ks involving real estate or unique goods (e.g., antiques, art)
• For service Ks, injunctions preventing breach of service K
may be available (e.g., non-compete clauses)

98
Q

UCC Reclamation

A

Unpaid sellers in UCC Ks may reclaim goods from an insolvent buyer (i.e., who cannot pay damages)
• Unpaid seller may reclaim goods if:
1) Buyer is insolvent at the time of delivery
2) Seller demands the return of goods within a reasonable time (usually 10 days), and
3) Buyer still has possession of the goods
• Unpaid seller can never reclaim goods from later buyers
» In such a case, the unpaid seller is limited to money
damages from the first buyer

99
Q

Unauthorized Resale of Goods

A

The owner may have a claim against the seller for conversion

100
Q

Expectation Damages

A

Puts the parties in the same economic position as if the K
had been performed (i.e., if the breach never occurred)
• Note — when in doubt, look for the answer that most
closely gives P (i.e., non-breaching party) the money she
would have received absent the breach

101
Q

Reliance Damages

A

Alternative measure of damages used when expectation damages are too speculative
• Designed to compensate P based on the value of her
performance (i.e., puts the parties in the same economic
position as if the K had never been formed)
• Only applicable when expectation damages are overly
speculative (i.e., P’s expected profits are too uncertain)

102
Q

Duty to Mitigate

A

All parties must mitigate damages
• A party may not recover for avoidable damages
• D bears the burden of showing P’s failure to mitigate

103
Q

Consequential Damages

A

Foreseeable losses indirectly resulting from the breach; recoverable if:
1) Damages are a foreseeable result of the breach, and
2) When K was formed, D had reason to know P would suffer special, unpreventable, or unexpected damages in the event of a breach
» UCC Ks — only buyers can recover

104
Q

Incidental Damages

A

Commercially reasonable expenses incurred by the non-breaching party in UCC Ks (e.g., costs of inspecting, returning, storing, reselling goods)
» UCC Ks — recoverable by both buyers and sellers

105
Q

Restitution Damages

A

Arise in quasi-K situations
• Applies if there is no enforceable K and a party has been unjustly enriched
• Awarded based on value of the benefit wrongfully conferred

106
Q

Liquidated Damages

A

Agreed-upon K provisions that stipulate specified damages upon the occurrence of a breach
• Liquidated damages provisions are valid only if:
1) Damages are difficult to project at time of K formation
2) The provision is a reasonable estimate of actual
damages

107
Q

Breach by seller & buyer keeps goods

A

» Damages = fair market value (FMV) of perfectly-delivered
goods minus FMV of the goods actually delivered
» Note — if seller breaches by delivering non-conforming but
superior goods, buyer is not responsible (i.e., it does not
reduce buyer’s damages)

108
Q

Breach by seller & seller keeps or buyer returns goods

A

» Damages = whichever of the following is higher:

a) FMV of goods at the time of breach minus K price, or
b) Buyer’s costs of covering/replacing goods minus K price

109
Q

Breach by buyer & buyer has goods

A

» Damages = K price

110
Q

Breach by buyer & seller has goods

A

Damages = either:

a) K price minus market price at the time of delivery, or
b) K price minus resale price plus provable lost profits

111
Q

Lost Profits

A

A seller can recover the lost profits from a buyer’s breach, even though she resold the item that was the subject of
buyer’s breach, if she can prove that she would have made a sale to the second buyer regardless of the first buyer’s breach

MBE Bar Studies (8 decks)

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