MBE Contracts Flashcards
Ways to Terminate Offers
Lapse Death of Offeror Counteroffer Rejection Constructive Revocation Offeror Revokes Destruction/Illegality
Limits on Revocation
Option Contract
Firm Offer
Promissory Estoppel (reasonable and detrimental reliance)
Partial Performance
- Unilateral: can’t revoke once performance begins
- Bilateral: performance beginning is a promise to render complete performance
When Silence is Acceptance
Offeree has reason to believe the offer could be accepted by silence or previous dealings make it reasonable to believe that the offeree must notify the offeror if they intend not to accept
Factors of Consideration
Must be a bargained-for exchange (legal detriment to promisee) for the promise
Promise must induce the detriment
Detriment must induce the promise
Preexisting Duty Rule Exception: Third Parties
A party’s promise to a third party to perform an act they are contractually obligated to perform for another is sufficient consideration
Modification Requirements under Common Law
Consideration Required
Enforceable if:
- Rescission of existing contract and entering into a new one
- Unanticipated difficulties arise and modification is fair
- New obligations arise on both sides
When Waiving a Legal Claim is Consideration
A promise not to assert (or release) a legal claim is not consideration unless the claim is doubtful or the party promising not to assert the claim believes in good faith it’s valid
Elements of Promissory Estoppel
- Promisor should reasonably expect it to induce action on the part of the promisee or a third party
- Promise does induce such action
- Injustice is only avoided y enforcement of the promise
Defenses to Formation
Mistake (Mutual and Unilateral) Misunderstanding Misrepresentation, Fraud Duress, Undue Influence Incapacity
Mutual Mistake
Both parties mistaken as to an essential element
Contract is voidable by the party adversely affected if:
1. Mistake existed when contract was formed
2. Mistake relates to a basic assumption of the contract
3. Mistake has a material impact on the transaction
4. The adversely affected party didn’t assume the risk
Neither party can avoid the contract if reformation can cure
Unilateral Mistake
One party’s mistaken as to an essential element
The mistaken party can void the contract if:
1. Mistake existed when contract was formed
2. Mistake relates to a basic assumption of the contract
3. Mistake has a material impact on the transaction
4. The adversely affected party didn’t assume the risk
5. Mistake would make enforcement unconscionable OR the non-mistaken party caused the mistake, had a duty to disclose or failed to, or knew or should have know of the mistake
Misunderstanding
Both parties think they’re agreeing to the same material terms but they’re not
- Neither party knows: no contract if material term
- One party knows: contract based on unknowing party’s definition
- Both parties know: no contract unless they intend it or waive it
Misunderstanding is subjectively determined
Fraudulent Misrepresentation
- Misrepresentation is fraudulent (knowing or reckless false assertion of fact with the intent to mislead) as to a present fact
- Misrepresentation induced assent; and
- Adversely affected party justifiably relied on the misrepresentation
Can be in the Execution or Inducement
Nonfraudulent Misrepresentation (Innocent Misrepresentation)
A misrepresentation of a material present fact that induced assent with justifiable reliance
Voidable
Fraud in the Execution
Other party doesn’t know they’re signing a contract at all
Void
Fraud in the Inducement
Other party knows its a contract but the terms are misrepresented
Voidable
Undue Influence
Unfair persuasion of a party to assent to a contract where one party puts intense pressure on another who is often weak minded or susceptible
Unfair Persuasion
Relationship between a dominant and dependent party due to lack of experience or diminished mental capacity
The persuasion of one party seriously impairs the free judgment of the other
Confidential Relationship
Dominant party has the burden of proving the contract was fair (may have a higher standard of disclosure)
Duress
An improper threat that deprives a party of a meaningful choice (like legal action in bad faith or breaching a contract in violation of good faith or bad dealing)
Void if Physical Compulsion
Voidable in other instances
Incapacity
Infancy: voidable by infant, not by adult
Mental Illness: void for someone adjudicated mentally incompetent, voidable if no adjudication
Intoxication: voidable if unable to understand the nature/consequences and the other party knew
Defenses to Enforcement
Impossibility/Impracticability Frustration of Purpose Accord & Satisfaction Novation Unconscionability Public Policy
Impracticability
Performance becomes illegal
Subject matter is destroyed
Performing party dies (services contract for special services) - general contracts estate still on the hook
More expensive is not a defense
Frustration of Purpose
Performance can still occur, but something has happened to undermine the entire reason for creating the contract
Must be extreme and risk is not previously allocated to one of the parties
Accord & Satisfaction
Parties to an earlier contract agree that performance will be satisfied with different performance
New Performance: Accord
Excusal of Original Performance: Satisfaction
If accord not performed, can sue either for accord or original contract terms (modification can only sue for new terms)
Novation
When both parties agree a substitute person will take over the contractual obligations
Releases the original promisor from performance/liability
Unconscionability
A contract is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would agree to it
Implied-in-Fact/Quasi-Contract Elements
- Plaintiff conferred measurable benefit on defendant;
- Plaintiff acted without gratuitous intent;
- Unfair to let defendant retain the benefit
When Performance Obligations are Discharged
Impracticability Frustration of Purpose Rescission Release Destruction/Damage to Identified Goods
Rescission
Cancelling of a contract to restore parties to their positions before the contract was made
Grounds must have existed at the time contract was made
Contract cannot be discharged if a third party’s rights have vested
Release
A writing that manifests an intent to discharge the other party from a duty
Common Law: requires consideration
UCC: no consideration required
Destruction/Damage to Identified Goods
Destruction
- If destroyed by no fault of either party:
Risk of loss on seller: contract avoided
Risk of loss on buyer: contract not avoided, seller may demand performance
Damaged
- Buyer can avoid or take the goods at a reduced price
Third Party Beneficiaries
Intended: one the promisee wants to satisfy an obligation to or benefit (can be creditor or donee)
Right to enforce once rights have vested
Incidental: one who benefits from a contract despite no intent to benefit them by the parties
No right to enforce
Vesting of a Beneficiary’s Rights
- Detrimental reliance on the rights created;
- Manifests assent to the contract at one of the party’s request; or
- Files a lawsuit to enforce the contract
Statute of Frauds Covers:
Mr. SOUR Marriage Surety One Year UCC (>$500) Real Estate
Statute of Frauds Elements
- Writing
- Signed by the party to be charged
- Contains all essential elements (parties, subject, price, quantity)
Exceptions to the Statute of Frauds under the UCC
Specifically Manufactured Goods Part Payment Receipt and Acceptance Judicial Admission Failure to Object to Memo Within 10 Days (both merchants)
General Exceptions to the Statute of Frauds
Judicial Admission
Promissory Estoppel
When the Parol Evidence Rule is Inapplicable
- Raising a defense to formation
- Raising a defense to enforcement
- Proving a condition precedent
- Interpreting/clarifying ambiguity
- UCC: supplementing even apparently unambiguous terms with trade usage/course of dealing
(express terms > course of performance > course of dealing > trade usage)
Substantial Performance
Does not generally apply for sales involving goods
Express Condition Precedent: strictly held to the condition; full compliance required
Implied/Constructive Condition Precedent: substantial compliance can trigger the other party’s obligation to perform
When Conditions are Waived and Reinstated
A party whose duty is subject to a condition can waive a nonmaterial condition by words or conduct
Conditions material to the party’s primary purpose may be reinstated if:
1. Waiving party communicates retraction before condition is due; and
2. Other party hasn’t suffered detrimental reliance
Elements of Anticipatory Repudiation
Common Law: clear and unequivocal repudiation through words or acts
UCC: unequivocal refusal to perform or when reasonable grounds for insecurity arise with no adequate assurances in time
Liquidated Damages
- Parties intended to agree in advance to damages that might arise from the breach
- The amount was reasonable at the time of contracting
- Actual damages would be uncertain and difficult to prove
- Can’t be punitive
Specific Performance: Factors Considered in Determining Whether Damages are Adequate
Difficulty of proving damages with reasonable certainty Hardship to defendant Balance of the equities Wishes and understandings of the parties Practicality of enforcement Mutuality of agreement
Buyer Remedies under the UCC: Failure to Tender Goods
- Cancel contract (if installment, breach must go to the entire contract)
- Recover payments
- Damages
- Cover/Recover
- Specific Performance (unique goods)
- Replevin (if at least partial payment made or can’t cover)
Buyer Remedies under the UCC: Nonconforming Tender
Accept or reject all or part of the goods
May be subject to seller’s right to cure
Seller Remedies under the UCC
- Price: if buyer has accepted goods; conforming goods are destroyed/lost after risk shifts to buyer; seller can’t sell identified goods
- Reclaim from insolvent buyer if demand within 10 days
- Stoppage in Transit
- Wrongful Rejection by Buyer - can collect damages, resell, recover, and may get lost profits if a lost volume seller
