1L 2SEM CONTRACTS FINAL Flashcards
(145 cards)
1
Q
Definition – Implied-in-Fact Terms
A
Term that is implicit in what the parties agreed.
2
Q
Definition – Implied-by-Law Terms
A
Term that the court finds should be made part of the agreement.
Arises by operation of law, not the parties’ agreement.
3
Q
Implied Promises
A
Mutuality satisfied when a promise is implied from words or conduct.
Implied promises serve as valid consideration, just like express promises.
4
Q
Issue: Can a promise be implied from imperfectly expressed writing?
A
Holding: Yes; obligations can be implied from surrounding circumstances.
5
Q
Factors Supporting Implied Term (Wood Case)
A
Exclusive agency suggests mutual duties.
Course of business supports obligation.
Business efficacy — implied term needed to make promises valuable.
Express promises meaningless without implied obligation.
6
Q
UCC § 2-306 – Output, Requirements, and Exclusive Dealings
A
Exclusive dealing contracts impose a duty of best efforts on both seller and buyer.
Best efforts usually interpreted as reasonable diligence.
7
Q
Duty of Good Faith
A
UCC § 1-304 (contracts for goods)
Restatement (Second) § 205 (general contracts)
Requires honesty, fairness, no bad-faith tactics.
8
Q
Issue: Is reasonable notification required to terminate an ongoing manufacturer-distributor oral agreement?
A
Holding: Yes; reasonable notification is required.
9
Q
UCC § 2-309 – Reasonable Notice of Termination
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Successive performance contracts require reasonable notification before termination.
Exception: No notice needed if it would be unconscionable.
10
Q
Factors for Determining Unconscionability (Leibel case)
A
Need to sell off remaining inventory.
Unrecouped investment reliance.
Time required to find substitute agreement.
Contract terms or industry standards.
11
Q
Warranty – Definition
A
Contractual assurance that goods meet certain standards.
Quality warranty guarantees a product’s quality for a set time.
Good faith is implied in every contract (UCC § 1-304).
12
Q
Sources of Warranty Law
A
Contract: Written express warranties.
Common Law: e.g., implied warranty of habitability.
UCC: Statutory warranties for goods.
13
Q
Two Common Warranty Categories
A
Warranty of Title: Seller guarantees they own the goods.
Warranty of Quality: Product quality guarantee for a specified time.
14
Q
Warranty of Quality – Types
A
Express Warranty: Oral/written assurance about goods.
Implied Warranties:
Implied Warranty of Merchantability.
Implied Warranty of Fitness for Particular Purpose.
15
Q
Express Warranties – UCC § 2-313
A
Created by:
Affirmation of fact/promise.
Description of goods (oral/written).
Sample or model.
Must form part of the basis of the bargain.
16
Q
Implied Warranty of Merchantability – UCC § 2-314
A
Goods must be fit for ordinary use, properly packaged, and free from defects.
Applies if seller is a merchant.
Buyer must show harm and that defect existed at sale.
17
Q
Implied Warranty of Fitness for a Particular Purpose – UCC § 2-315
A
Seller knows buyer’s special purpose.
Buyer relies on seller’s skill/judgment.
Goods must be fit for that particular purpose.
18
Q
P purchased a home; claimed implied warranty of workmanlike construction applied.
Issue: Does implied warranty extend to subsequent buyers?
A
Holding: Yes.
19
Q
Implied Warranty of Workmanlike Construction
A
Elements:
Home built for residence use.
Buyer unaware of defect.
Defect caused damage.
Modern rule extends to subsequent buyers.
20
Q
Public Policy for Extending Workmanlike Construction Warranties
A
Defects not always obvious at purchase.
Increased social mobility.
Balanced by statutes of repose (e.g., 15 years).
21
Q
Disclaiming Warranties (Express)
A
Oral express warranties can be disclaimed carefully.
Written express warranties are almost impossible to disclaim.
22
Q
Disclaiming Warranties (Implied)
A
Disclaimer must be conspicuous.
“Merchantability” must be stated if disclaiming merchantability.
Language like “as is” may disclaim implied warranties.
23
Q
Defenses Affecting Contracts
A
Valid Contract: Enforceable with all elements.
Void Contract: No legal effect; unenforceable.
Voidable Contract: Aggrieved party may rescind or enforce.
24
Q
Capacity – General Rule
A
Legal ability to enter a contract.
Adults of sound mind have capacity.
Minors and mentally impaired individuals lack full legal capacity — contracts are voidable.
25
Three Categories of Incapacity
Minor (Infancy).
Mental Incapacity.
Intoxication.
26
Minors – General Rule
Anyone under the statutory age of majority (usually 18).
Contracts are voidable at the minor’s option.
27
Minor’s Options: Disaffirmance and Ratification
Disaffirmance: Expressly or impliedly refuse the contract before or shortly after reaching majority.
Ratification: After majority, affirm expressly, impliedly, or by failing to disaffirm.
28
Restitution – Minor Contracts
Minor must return what remains of the goods, if possible.
No requirement to pay for use or depreciation under traditional rule.
29
Two Approaches to Minor Restitution
Traditional (Infancy Doctrine): Return remaining goods only; no compensation for use/depreciation.
Modern Trend: Must compensate merchant for use, depreciation, or loss in value.
30
Special Rules for Minors
Necessaries: Minor must pay reasonable value (e.g., food, shelter).
Misrepresentation of Age: May affect ability to disaffirm.
Tortious Conduct: May limit disaffirmance if minor intentionally damaged property.
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Mentally Impaired Individuals – General Rule
Cannot understand nature and consequences of transaction → contract is voidable.
If court already declared incompetence → contract is void.
32
Cognitive Test (Traditional Rule)
Was the person capable of understanding the transaction?
If not, contract is voidable.
33
Volitional Test (Modern Rule)
Could the person act reasonably despite some understanding?
Contract is voidable if:
1. Unable to act reasonably.
2. Other party knew or should have known.
34
Effect of Mental Incompetence
Void: Court-declared incompetence before contract.
Voidable: No prior declaration, but person lacked capacity at time of contract.
Valid: Mentally ill person had capacity during lucid interval.
35
Lucid Interval Rule
Contracts are valid if made during periods when the individual had full capacity, despite mental illness.
36
Intoxication and Contracts
Contract is voidable if intoxication prevents understanding nature/consequences.
After sobering, party can disaffirm or ratify within a reasonable time.
37
Consent – General Principle
Contract entry must be voluntary.
Cannot be forced, tricked, or pressured into agreement.
Lack of voluntary consent may be grounds to avoid contract.
38
Duress – Definition
Wrongful act or threat compelling someone through fear to enter a contract.
Includes force, coercion, threats, and psychological pressure.
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Factors Indicating Duress
No legitimate business purpose.
Greatly unequal bargaining power.
Unnaturally large gain for one party.
Financial distress for one party.
Immediate action required.
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Two Types of Duress
Physical Duress: Physical force = void contract.
Duress by Threat (including Economic Duress): Wrongful threat = voidable contract.
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Elements of Duress
Wrongful or improper threat or act.
No reasonable alternative but to submit.
Threat/act actually induced the agreement.
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Duress – Simple Test
Victim of wrongful/unlawful act or threat.
Act/threat deprived victim of free will (no reasonable alternative).
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Undue Influence – Definition
Special relationship of trust or domination and improper or unfair persuasion.
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Special Relationships for Undue Influence
Close relatives.
Lawyer-client.
Doctor-patient.
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Effect of Undue Influence
Contract is voidable at the option of the innocent party.
Improper use of power replaces victim's choice with influencer’s choice.
46
Misrepresentation – Definition
Assertion not in accord with facts (words or conduct).
Fraudulent or innocent but material misrepresentation makes a contract voidable.
47
Elements of Misrepresentation
False statement of material fact.
Reliance by the other party.
Causation of damages or entry into the contract.
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Two Types of Misrepresentation
Fraudulent Misrepresentation: Intent to deceive.
Innocent but Material Misrepresentation: Made innocently or negligently.
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Fraudulent Misrepresentation – Key Points
Intent to induce agreement.
Knowledge of falsity or reckless disregard for truth.
Reliance justifies voiding the contract or seeking damages.
Case Example: Syester v. Banta.
50
Innocent but Material Misrepresentation – Key Points
False statement believed true or made negligently.
Material enough to influence a reasonable person.
Allows rescission, usually without damages.
51
Opinion vs. Fact
Fact: Objectively verifiable (e.g., "Made in 2020").
Opinion: Subjective belief (e.g., "Best car on the market").
Misrepresentation must involve fact, not mere opinion.
52
Opinion Exceptions (Modern Rule)
Confidential/Fiduciary Relationship.
Special Skill or Judgment.
Recipient’s Susceptibility (e.g., advanced age).
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Nondisclosure – General Rule
Failing to disclose material facts can be misrepresentation when a duty exists.
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Concealment vs. Nondisclosure
Concealment: Actively hiding material facts.
Nondisclosure: Failing to reveal material facts when a duty exists.
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When Nondisclosure Becomes Misrepresentation
To prevent a previous assertion from being misleading.
To correct another’s mistake where fairness demands it.
To clarify mistakes in a writing.
Due to a special trust relationship.
56
Context for Unconscionability
Courts rarely police fairness or adequacy of consideration.
Doctrine of Unconscionability is a "catch-all" defense for fundamentally unfair contracts.
57
Definition of Unconscionability
A contract that is manifestly unfair or oppressive.
Criticized for vagueness, but firmly part of U.S. law.
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Two Aspects of Unconscionability
Procedural: Problems with the bargaining process.
Substantive: Problems with the actual terms.
Sliding scale: a strong showing of one can compensate for a weaker showing of the other.
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Procedural Unconscionability – Key Factors
Lack of meaningful choice.
Unequal bargaining power.
Hidden or confusing terms.
Take-it-or-leave-it contracts (contracts of adhesion).
60
Substantive Unconscionability – Key Factors
Unfairly one-sided terms.
Remedy limitations.
Major imbalance in rights and obligations.
61
Timing and Fact v. Law
Tested at formation: Were terms unfair when the contract was made?
Judge decides unconscionability (not jury).
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Scope of Unconscionability Doctrine
Refuse to enforce the entire contract.
Strike or limit only the unconscionable clause.
63
UCC § 2-302
Courts can refuse to enforce an unconscionable clause or contract.
Courts allow parties to present evidence about the commercial setting and effect.
64
Restatement (Second) of Contracts § 208
Court can strike or limit unconscionable terms to avoid unfair results.
Similar in approach to UCC § 2-302.
65
Arbitration and Unconscionability – Overview
Courts initially skeptical of arbitration.
Later pro-arbitration, but concerns remain over forced arbitration clauses favoring businesses.
66
Public Policy – Background
Prior defenses involved misconduct.
Here: contract formation clean, but contract unenforceable because it violates public policy.
67
Two Types of Public Policy Violations
Illegal Contracts: Object or consideration illegal (e.g., buying drugs).
Against Public Policy: Legal contract that offends societal values.
68
Illegal Contracts
Contract void if illegal.
No restitution if both parties are culpable.
Example: Contract for a mob hit.
69
Contracts Against Public Policy – Examples
Gambling (unless authorized).
Insurance (no "gambling" if insurable interest exists).
Usury (excessive interest).
Unlicensed Workers (if licensing protects the public).
70
Licensing Statutes
Protect Public: Unlicensed contracts unenforceable (e.g., doctors, lawyers).
Raise Revenue: Contracts enforceable (e.g., fishing license).
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Contracts Against Public Policy – General Rule
Contract promotes immorality or harmful consequences.
Courts balance freedom to contract vs. public interest.
72
Factors for Public Policy Violation
Scope of Restriction: Overbroad restrictions.
Hardship to Promisor: Severe economic/personal hardship.
Public Interest: Impact on broader society.
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Three Elements for Reasonableness
Scope of Activity: What activities are restricted.
Geographical Reach: Where the restrictions apply.
Time Duration: How long the restriction lasts.
74
Examples of Public Policy Violations
Blackmail.
Prostitution.
Fee-splitting between attorneys and non-attorneys.
Overbroad non-competes.
75
Exculpatory Clauses – General Rule
Release from simple negligence is OK.
Release from gross negligence or intentional misconduct is NOT enforceable.
76
When Exculpatory Clauses Are Unenforceable
Gross negligence or intentional acts.
Public interest or essential services affected.
Unequal bargaining power.
Language not clear and conspicuous.
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Mistake – Definition
Agreement reached but based on an erroneous assumption about existing facts.
Party claims they would not have contracted had they known the truth.
Remedy: Rescission or Reformation (extraordinary equitable remedies).
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Two Types of Mistake
Mutual Mistake: Both parties share mistaken belief.
Unilateral Mistake: Only one party is mistaken.
79
Mutual Mistake – Rule
Aggrieved party can rescind if:
1. Mistake relates to facts at time of contract.
2. Mistake materially affects the agreement.
3. Mistake concerns a basic assumption.
4. Party did not assume risk.
80
Mutual Mistake – How a Party Bears the Risk
Contract Allocates Risk (e.g., “as is” clause).
Limited Knowledge Accepted as sufficient.
Court Assigns Risk based on reasonableness (expertise or control over facts).
81
Unilateral Mistake – Rule
Mistaken party avoids contract if:
1. Mistake existed at time of contract.
2. Mistake concerns basic assumption.
3. Material effect adverse to mistaken party.
4. Mistaken party did not bear risk.
Plus one:
1. Other party knew or caused mistake, or
2. Enforcement would be unconscionable.
82
Unlikely Mistake Claims
Bad judgment or ignorance.
Prediction errors (e.g., bad stock forecast).
Mistake of value (e.g., cow thought to be barren).
Conscious uncertainty (e.g., gold mine may/may not have gold).
83
Likely Valid Mistake Claims
Clerical errors (e.g., typo).
Mathematical errors (e.g., wrong calculation).
84
Changed Circumstances – Definition
Something happens between contract formation and performance that was not anticipated.
Performance may be excused by Impossibility, Impracticability, or Frustration of Purpose.
85
Three Doctrines Overview
Impossibility.
Impracticability.
Frustration of Purpose.
86
Impossibility – Definition
Performance objectively impossible.
Literal impossibility — no one could perform.
87
Impossibility – Three Situations
Destruction of subject matter.
Destruction of subject matter.
Death or incapacity of necessary party.
Supervening law or government regulation.
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Impracticability – Definition
Performance not impossible, but extremely burdensome or expensive beyond expectations.
Drastic, unexpected change makes performance impracticable.
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Impracticability – Key Issues
Materiality: Severe, unexpected burden.
Risk allocation: Party neither assumed nor should bear risk.
90
Impracticability – Elements
Extreme change makes performance impracticable.
Nonoccurrence of event was a basic assumption.
Party seeking relief is not at fault.
Party did not bear the risk.
91
Frustration of Purpose – Definition
Performance still possible, but the value of the performance is destroyed for the party.
92
Frustration of Purpose – Elements
Extreme reduction in value of the other party’s performance.
Nonoccurrence of event was a basic assumption.
Party seeking relief is not at fault.
Party did not bear the risk.
93
Remedies for Changed Circumstances
Discharge obligation.
Adjust obligation (modify terms to reflect the new circumstances).
94
Modification – Definition
A change to an existing executory contract (e.g., price, delivery, terms).
Can be legitimate or coercive.
95
Common Law – Pre-Existing Duty Rule
A party cannot demand additional compensation for what they are already obligated to do.
No valid consideration for modifications based on existing duty.
96
Exceptions to Pre-Existing Duty Rule
Rescission followed by a new contract.
Detrimental reliance.
Unforeseen circumstances.
Statute (e.g., UCC allows modification without new consideration).
97
Restatement Rule on Modification
A contract modification is binding if:
(a) Fair and equitable due to unanticipated circumstances.
(b) Allowed by statute.
(c) Needed for justice due to material reliance.
98
UCC § 2-209 – Modification
No consideration required for modifying contracts for the sale of goods.
Must be made in good faith.
Reverses the common law pre-existing duty rule.
99
Express Conditions – Definition
An event, not certain to occur, that must occur (unless excused) before performance under a contract is due.
100
Three Categories of Contractual Terms
Promise: Commitment to act/refrain in future.
Condition: Event required before performance.
Promissory Condition: Both a promise and a condition.
101
If Term is a Promise
Only substantial performance required.
Failure = breach, but other party must still perform.
Remedy = damages.
102
If Term is an Express Condition
Requires strict compliance.
Failure = no breach, but performance obligation is discharged.
No damages; result may be complete forfeiture.
103
If Term is a Promissory Condition
Non-occurrence discharges duty and allows damages for breach.
Combo of condition and promise.
104
Preference in Interpretation – Restatement (Second) § 227
Courts prefer interpreting terms as promises, not express conditions.
Goal: Minimize forfeiture.
105
Forfeiture – Definition and Rule
Forfeiture: Loss of compensation after substantial reliance.
Courts may excuse non-occurrence of condition to prevent disproportionate forfeiture, unless the condition was material to the exchange.
106
Material Breach – Definition
Failure to perform that is so serious the non-breaching party may suspend performance and seek damages.
107
Circumstances to Determine Material Breach (Restatement § 241)
Extent injured party deprived of expected benefit.
Extent injured party can be adequately compensated.
Extent breaching party will suffer forfeiture.
Likelihood breaching party will cure.
Breaching party’s good faith and fair dealing.
108
Breach, Material Breach, and Total Breach
Breach: Failure to perform without justification.
Material Breach: Serious defect in performance.
Total Breach: Material breach that remains uncured, justifying contract termination.
109
Cure – Opportunity to Fix Breach
Breaching party can cure a major defect if done before performance deadline.
Successful cure may prevent material or total breach.
110
Divisible Contracts
Courts avoid forfeiture by allowing partial recovery if the contract is divisible.
Divisible if performances can be split into corresponding parts considered equivalents.
111
Substantial Performance Doctrine – Limitation
Substantial Performance applies to services contracts (NOT sale of goods).
For goods, different rule applies!
112
UCC Perfect Tender Rule
Buyer can reject goods if they fail to conform exactly to the contract.
Limitations on the Perfect Tender Rule:
1. Obligation of good faith.
2. Seller’s right to cure.
3. Special rules for installment contracts.
113
Anticipatory Repudiation – Definition
Occurs when a party clearly indicates they will not perform before performance is due.
Treated as a total breach, allowing:
a. Immediate lawsuit.
b. Suspension of own obligations.
c. Seeking alternatives.
114
Two Scenarios for Repudiation
Express Anticipatory Repudiation: Clear refusal to perform (oral, written, or conduct).
Reasonable Grounds for Insecurity: Doubts about performance, triggering demand for assurance.
115
Legal Standard for Repudiation
Repudiation must be definite and unequivocal.
Mere doubts or vague language are not enough.
Wrongly assuming repudiation can make you the breaching party!
116
Retraction of Anticipatory Repudiation
Repudiating party can retract if:
a. Non-breaching party hasn’t materially relied, and
b. Non-breaching party hasn’t treated repudiation as final.
Retraction must provide adequate assurance of performance.
117
Right to Adequate Assurance – UCC § 2-609
If reasonable grounds for insecurity, may demand assurance in writing.
Suspension of performance allowed until assurance received.
Must get assurance within 30 days or treated as repudiation.
118
Adequate Assurance – Common Law vs. UCC
UCC: Demand must be written, 30-day maximum.
Common Law: No writing required, no fixed time limit, but assurance must still be reasonable.
119
Expectation Damages – Purpose
Goal: Compensate, not punish.
Remedies are monetary unless money damages are inadequate (then specific performance).
Punitive damages are not available (except rare cases like insurance bad faith).
120
Three Remedial Interests
Expectation: Benefit of bargain (default).
Reliance: Expenses incurred by relying on contract.
Restitution: Prevent unjust enrichment.
121
Types of Monetary Damages
Direct (General): Loss of value directly from breach.
Consequential (Special): Indirect, foreseeable losses (e.g., lost profits).
Incidental: Costs to mitigate breach effects (e.g., storage, reshipping).
122
Expectation Damages Formula
Expectation Damages = (Loss in Value + Other Losses) – (Cost Avoided + Loss Avoided)
123
Four Key Limitations on Recovery
Foreseeability (Hadley v. Baxendale).
Certainty (Florafax case).
Causation.
Mitigation (Rockingham v. Luten Bridge).
124
Mitigation Principle
Duty to take reasonable steps to reduce damages.
No recovery for avoidable losses.
125
Mitigation in Employment (Maness v. Collins)
Employer must prove comparable jobs were available.
Employee not penalized for failing to accept inferior employment.
126
Nonrecoverable Damages
Attorney's fees (unless statute or contract says otherwise).
Emotional distress (only in limited cases).
Punitive damages (unless independent tort exists).
127
Reliance Damages
Compensate for expenses incurred based on contract reliance.
Used when expectation damages too speculative.
Wartzman v. Hightower: Recovery allowed where lost profits too uncertain.
128
Restitution Damages – Purpose
Prevent unjust enrichment.
Focus: Value of benefit conferred, not losses.
129
Restatement (Second) Key Provisions on Restitution
§ 373: Injured party may recover benefits conferred.
§ 374: Breaching party can recover if benefit exceeds damage.
§ 375-377: Restitution after voidable contracts, SoF, or impracticability.
130
Specific Performance – When Available
Only when money damages are inadequate.
Common for land and unique goods.
131
Specific Performance – Limitations
Not granted if terms are uncertain.
Rarely available for personal services (due to involuntary servitude concerns).
132
Liquidated Damages – General Rule
Enforceable if:
1. Actual damages hard to measure at formation.
2. Amount is a reasonable forecast of harm.
133
Penalty Doctrine
Clauses intended to punish are unenforceable.
Focus must remain on compensation, not punishment.
134
UCC § 2-718(1) – Liquidated Damages (Sales of Goods)
Same standard: reasonable forecast, no penalties allowed.
135
third party rights: Modern Law – Intent-Based Rule
Only intended beneficiaries may enforce a contract.
Incidental beneficiaries have no rights.
136
Key Definitions of third parties
Promisor: Makes the promise.
Promisee: To whom the promise is made.
Third Party Beneficiary: Person benefiting from the promise.
Intended Beneficiary: Can enforce the contract.
Incidental Beneficiary: Cannot enforce the contract.
137
Types of Intended Beneficiaries
Donee Beneficiary: Receives gift benefit (e.g., life insurance to child).
Creditor Beneficiary: Satisfies existing debt (e.g., paying bank directly).
138
Incidental Beneficiaries
Benefit from contract incidentally (e.g., mall development helps neighbor).
No enforcement rights.
139
Vesting of Rights – When Third Party Rights Lock In
Rights vest when third party:
1. Relies materially on the promise.
2. Assents at request of parties.
3. Files suit to enforce contract.
140
Modification or Cancellation
Before vesting: Contracting parties can change or cancel terms.
After vesting: Cannot defeat third party's rights.
141
Defenses Against Third Party Claims
Same defenses against promisee apply against third party, including:
a. Fraud.
b. Mistake.
c. Failure of consideration.
d. Breach by promisee.
142
Assignment – Definition
Assignment: Transfer of contract rights to a third party.
Example: Assigning the right to receive payment.
143
Delegation – Definition
Delegation: Transfer of contract duties to a third party.
Example: Delegating the duty to perform construction work.
144
Combined Assignment and Delegation
Often occurs together.
Example: Tenant subleases =
a. Assigns right to occupy.
b. Delegates duty to pay rent.
145
Assignment and Delegation – Big Picture
Allow third parties to gain rights and duties even without privity of contract.
Expands reach of contract obligations beyond original parties.
