#6 Contracts Flashcards
(48 cards)
Can a seller avoid liability for personal injury by including a disclaimer in a product sale under the UCC?
No. Under UCC § 2-719, a seller cannot disclaim liability for personal injuries caused by a defective product.
Even if a disclaimer is written into the sale, it is ineffective if the product causes bodily harm.
Key Notes:
Privity is not required — injury victims don’t have to be the buyer
Disclaimers like “as is” are allowed for warranties, but not for physical injury
Seller will still be held liable for damages
What is a novation, and how does it apply when a corporation is formed?
A novation is when a new party (like a newly formed corporation) takes over a contract and fully replaces the original party (the promoter), with consent from all parties. This releases the promoter from liability.
A promoter is someone who signs contracts on behalf of a corporation before it’s legally formed. Until a novation occurs, the promoter is personally liable.
Example: You sign a lease for a future gym before forming the corporation. Once the corporation is created, all parties agree to swap you out and put the corporation in. Now the corporation owes the rent, and you’re no longer liable — that’s a novation.
Only a novation can remove a promoter’s liability. Assignment or delegation does not.
When does the warranty of merchantability arise under the UCC?
It arises automatically by law when a merchant sells goods of the kind they normally sell. The goods must be fit for their ordinary purpose and match any packaging or descriptions.
You do not need a written or spoken warranty — it’s implied by the sale itself.
Bonus tip:
Don’t confuse this with the warranty of fitness for a particular purpose, which only applies when the buyer relies on the seller’s advice for a specific need.
In a contract where Egan agrees to buy Barton’s business and pay off Barton’s debt to Ness (including a life insurance policy to ensure payment if Egan dies), what is Ness’s status under both the contract and insurance policy?
Ness is a creditor beneficiary under both the contract and the insurance policy.
Why:
A creditor beneficiary receives a benefit because a debt is owed and the contract is meant to satisfy that debt.
A donee beneficiary receives a benefit as a gift — no debt is owed.
In this case:
Egan is assuming Barton’s obligation to pay off Ness, a creditor.
The insurance policy ensures that Ness is still paid if Egan dies.
✅ Creditor beneficiary = Enforcing payment of a debt.
🚫 No donee beneficiary = No one is receiving a gift.
Key rule to remember:
A creditor beneficiary can sue to enforce payment. A donee beneficiary can only sue the promisor (not the promisee) if the promised gift is not delivered.
Can a minor disaffirm a contract after reaching the age of majority?
Yes, a minor can disaffirm (cancel) a contract at any time while still a minor, and also within a reasonable time after reaching the age of majority.
Key Rules:
Contracts with minors are voidable, not void.
A contract becomes binding only if the minor ratifies it after turning 18.
Continued use or acceptance of benefits after turning 18 may be seen as ratification.
If the minor disaffirms within a reasonable time after turning 18, the contract is not binding.
Example:
Rail bought a computer at age 16. After turning 18, he quickly returned it, demanding a refund. This disaffirmance was timely and valid. Elco cannot deny the refund if no ratification occurred.
Thing to Remember:
Voidable = valid but can be canceled by one party. Minors get this protection to avoid exploitation.
Gold agreed in writing to sell Hatch a used computer for $150. Hatch brought the money, but Gold refused to deliver the computer. What remedy is Hatch entitled to?
Compensatory damages only.
📚 Explanation:
When a contract is breached, the standard remedy is compensatory damages—money that puts the non-breaching party in the position they would’ve been in if the contract had been fulfilled.
In this case, Hatch can recover the difference between what he was supposed to pay ($150) and what he actually had to pay to replace the computer (say, $350). That $200 difference is Hatch’s actual financial loss.
Specific performance (forcing Gold to hand over the computer) isn’t available because the computer isn’t unique or irreplaceable.
Consequential damages apply only when special harm was foreseeable to the breaching party—which it wasn’t here.
Punitive damages are not awarded in contract cases (only in torts like fraud or injury).
🧠 Key Takeaway:
Contract law aims to compensate, not punish. If the item can be replaced and no unique harm occurred, the remedy is compensatory damages only.
Under UCC rules, when does risk of loss transfer in an FOB shipping point contract?
A: When the goods are delivered to the carrier (e.g. UPS, FedEx). Risk of loss shifts to the buyer at that moment.
Key Rule:
In FOB shipping point contracts, title and risk pass to the buyer when the carrier takes possession—not when goods are placed on the seller’s dock.
Example:
If a seller ships goods FOB New York and the buyer is in LA, the buyer bears the risk once the items are handed to the carrier in NY.
What does the mirror image rule say about contract acceptance under common law?
A: The offeree must accept all terms exactly as stated in the offer. Any change, even to price, creates a counteroffer—not a contract.
Key Rule:
Under the mirror image rule, a contract is only formed when the acceptance is a mirror of the original offer. A counteroffer kills the original offer.
Example:
If an offer is made to sell a home for $150,000 and the response says, “I’ll pay $145,000,” no contract is formed. The $145,000 is a counteroffer, and the seller is not bound unless they agree.
What is the Statute of Frauds, and which types of contracts does it require to be in writing?
The Statute of Frauds is a legal rule that requires certain types of contracts to be in writing to be enforceable. Its purpose is to prevent fraud and misunderstandings in significant agreements.
Use the mnemonic GROSSE to remember which contracts must be in writing:
G – Sale of Goods $500 or more
R – Real estate sales
O – Contracts that take Over one year to perform
S – Surety (guarantee to pay someone else’s debt)
S – Promises made in consideration of marriage
E – Executor promises to pay estate debts from their own funds
💡 Key Rule: These contracts must include essential terms (like price and subject), and be signed by the party being sued. They do not need to be in one document.
What is the implied warranty of merchantability, when does it apply, and how can a seller cancel it?
🟩 Implied Warranty of Merchantability (UCC)
- This warranty means the item will work for its normal use (e.g., a toaster toasts, a tire drives safely).
- It applies automatically when a merchant sells goods — even if they don’t mention it.
- The buyer doesn’t have to be a merchant, and doesn’t need to ask for the warranty.
How can the seller cancel it?
* By clearly saying “as is,” “with all faults,” or using the word “merchantability” in the disclaimer.
Example:
A tire shop (merchant) sells a tire. Unless they say otherwise, the tire must be safe for driving. If sold “as is,” no warranty applies.
Key Rule:
This warranty protects buyers by default — but merchants can cancel it if they do so clearly and correctly.
Under the Statute of Frauds (SOF), Carson orally agreed to repair Ives’s rare book for $450. Later, they agreed orally to increase the price to $650 for additional work. Ives refused to pay, and Carson sued. What is the total amount Carson can recover?
The Statute of Frauds (SOF) only applies to certain types of contracts — if a contract falls under SOF and is not in writing, it can be unenforceable.
SOF does not apply here because:
This was a contract for services (book repair), not the sale of goods.
The work could be completed within one year.
The price increase (from $450 to $650) does not trigger the SOF, since the $500+ rule only applies to sales of goods, not services.
Therefore, the oral contract is valid, and Carson can recover the full $650.
🧠 Statute of Frauds Basics:
Certain contracts must be in writing to be enforceable. Use the acronym GROSSE to remember when SOF applies:
Goods $500+
Real estate sales
Over 1 year to perform
Suretyship (guarantee someone else’s debt)
Statement in consideration of marriage
Executor promises to pay estate debt from personal funds
If a contract fits any one of these, it must be in writing — otherwise, SOF is a defense to avoid performance.
Under the parol evidence rule, which types of agreements can be admitted as evidence even after a final written contract is signed?
A. Prior written agreements
B. Subsequent oral agreements
C. Both A and B
D. Neither A nor B
Correct Answer: B. Subsequent oral agreements
The parol evidence rule (PER) blocks parties from introducing prior or contemporaneous oral or written agreements that contradict a finalized written contract. The idea is to protect the integrity of written contracts once they’re signed as the full and final agreement.
However, subsequent modifications (oral or written) made after the contract are not blocked by the PER. Courts will allow these to show that the parties agreed to change the deal after signing.
Key takeaways:
❌ Evidence of prior agreements contradicting the written deal = Not allowed
✅ Evidence of later changes = Allowed
✅ Evidence to clarify ambiguous terms or prove fraud/mistake = Allowed
Tip to remember:
Parol Evidence Rule = “What’s done before is barred. What’s changed after is fair game.”
When can a verbal agreement to modify a sales contract be legally binding under the UCC?
Does a change to delivery date need to be in writing?
🟦 Under UCC § 2-209, a verbal modification to a contract for the sale of goods is binding as long as the overall contract does not fall under the Statute of Frauds.
The Statute of Frauds only requires a writing when the contract is for $500 or more.
In this case, because the contract was for $480, a verbal agreement to change the delivery date is valid and enforceable.
Acme agreed to deliver on June 2, so failure to deliver on that date is a breach.
📝 Key Rule:
Verbal modifications to contracts under $500 are enforceable under the UCC.
A delivery date change is valid even without a new writing if the underlying contract doesn’t require it.
When can a buyer sue a seller for breach of the implied warranty of merchantability under the UCC?
🟦A buyer can sue for breach of the implied warranty of merchantability only if:
The seller is a merchant who ordinarily sells goods of that kind,
The goods were not fit for ordinary use,
The seller did not disclaim the warranty using clear language like “as is” or “with all faults.”
📝 Key rule:
The buyer does not need to prove negligence, privity of contract, or strict liability.
The seller must be a merchant, and the defect must make the product unfit for normal use.
Under the UCC, which oral contracts for goods over $500 must be in writing to be enforceable?
Most oral contracts for goods priced over $500 are unenforceable under the Statute of Frauds—unless an exception applies.
🔑 Use the acronym SPAM for exceptions:
- Specially manufactured goods (made uniquely for the buyer)
- Performance occurred (goods were received/accepted or payment was made)
- Admitted in court (by the defendant)
- Merchant fails to object to confirmation in 10 days
📌 A contract to sell a work of art for over $500, without writing, usually does not qualify for any SPAM exception → unenforceable.
📝 Key Rule:
Writing is required for goods ≥ $500
Unless SPAM applies
When a contract includes a daily penalty for late completion, what type of damages does that represent
This represents liquidated damages, not compensatory damages.
Liquidated damages are:
A pre-agreed dollar amount set in the contract
Intended to represent a reasonable estimate of the loss if one party breaches
Enforceable as long as they’re not excessive or punitive in nature
📌 Key Rule:
If the contract says the breaching party will forfeit $X per day for being late, and both parties agreed to that amount in advance, that clause governs—even if the work is eventually completed.
🔑 In this case:
Mullin finished the project 30 days late
Contract said: $100 forfeiture per day late
➡️ The town gets $3,000 in liquidated damages, not compensatory damages
Let me know if you want a diagram too.
What must a plaintiff prove to recover under strict product liability?
Under strict product liability, the plaintiff does not need to prove negligence.
To win, the plaintiff must prove all 3:
1 The product was sold in a defective condition
2 The product was being used as intended
3 The defect caused injury
📌 Key points:
No need to prove who was at fault
No need for privity of contract
Recovery is still allowed even if the injured person can’t show negligence
Strict liability focuses on the dangerous defect, not on whether the seller or manufacturer was careless.
If someone assigns their rights under a contract to another person, when are they no longer liable under that contract?
The original party (called the assignor) remains legally responsible for the contract unless the person receiving the rights (the assignee) explicitly releases them from liability. Assigning the contract does not remove the assignor’s responsibility by default.
Example:
West, Inc. enters into a contract with Barton to deliver 1,000 custom chairs by December. Later, West assigns the contract to Egan, who pays West for the assignment. Barton then fails to deliver the chairs. Egan sues West for breach of contract.
West is still liable because Egan never released West from responsibility. Even though West is no longer directly involved, the law assumes West is still on the hook unless Egan clearly agrees otherwise.
Key Rule:
Assigning contract rights does not cancel the assignor’s liability. The assignor is only released if the assignee formally and explicitly agrees to release them.
Under the UCC, what limits apply to liquidated damages in a sales contract?
🟦Liquidated damages must be a reasonable estimate of actual losses and cannot be punitive. A seller can’t just write any amount into the contract — if it’s excessive, it won’t be enforced.
Even if the contract doesn’t mention liquidated damages, the UCC allows the seller to keep up to $500 of the buyer’s deposit when the buyer breaches — as long as it’s fair.
Key rule: Liquidated damages must be fair, not arbitrary. And sellers may keep up to $500 automatically if the buyer defaults.
Under UCC § 2-403, what happens when an owner entrusts goods to a merchant who sells that kind of goods, and the merchant mistakenly sells them?
If you entrust goods to a merchant who deals in that type of goods, and the merchant sells them to someone buying in the ordinary course of business, the buyer gets good title — even if the sale was a mistake.
The original owner cannot get the goods back from the buyer. Their only remedy is to sue the merchant.
Example:
West gives a clock to Grill (a clock seller) for repair. A clerk mistakenly sells the clock to Hone, a regular customer. Hone doesn’t know it’s a mistake and buys it in good faith.
➡️ Hone gets good title. West cannot recover the clock from Hone — only from Grill.
Key Rule:
Good faith buyers in the ordinary course of business are protected. The merchant is liable, not the buyer.
Under the UCC, what can a party do if they prove the other side committed fraud in the formation of a contract?
They can rescind the contract (cancel it) and sue for damages caused by the fraud.
This means the injured party can walk away from the contract as if it never existed and recover any financial harm they suffered because of the fraud.
But they must return any goods or money they received — unless some of it counts as damages.
They cannot claim punitive damages under the UCC. And they must have actually relied on the fraud for it to count.
Example:
A seller lies about a product’s condition to get the buyer to agree. The buyer discovers the fraud. Under the UCC, the buyer can rescind the contract and sue for losses — but not for extra punishment.
Let me know if you want this turned into a visual chart or made more compact.
When is a merchant’s offer to sell goods binding under the UCC even if the buyer gives no consideration?
Under the UCC, a firm offer by a merchant is enforceable without consideration if three conditions are met (remember SUM):
- Signed: The offer is in writing and signed by the merchant
- Up to 3 months: If no time is stated, it stays open for a reasonable time — but never longer than 3 months
- Merchant: The offeror is a merchant who regularly deals in those goods
Example:
A store runs out of a sale item and gives a customer a signed rain check with no expiration date. The customer returns a month later, and the store refuses to honor it.
➡️ Under UCC firm offer rules, the customer can enforce the offer — because the rain check meets all SUM conditions.
Key Rule:
A merchant’s signed written offer is binding without consideration, for up to 3 months, even if no end date is listed.
When is a verbal contract for goods over $500 enforceable under the UCC even though it wasn’t in writing?
A verbal sales contract over $500 is enforceable if it meets an exception to the UCC Statute of Frauds. Use SPAM to remember the four exceptions:
- Specially manufactured goods made just for the buyer
- Performance of the contract has already begun
- Admission in court by the defendant
- Merchant fails to object to written confirmation within 10 days
Example:
A buyer asks a manufacturer to build a custom $2,000 door. The seller builds it, but the buyer later tries to cancel. Even though the contract was verbal, it is enforceable because the door was specially made and can’t be resold.
Key Rule:
Custom goods that can’t be sold to others make a verbal contract enforceable, even over $500.
Let me know if you want this shortened or turned into a SPAM mnemonic diagram.
When will a personal services contract be discharged by operation of law?
A personal services contract (PSC) will be discharged if:
- The person performing the service dies or becomes incapacitated
- The subject of the contract becomes illegal to perform
- A court ruling discharges the contract (e.g., bankruptcy)
It will not be discharged just because the person receiving the service dies or goes bankrupt. The performer still has to perform unless the law makes it impossible or illegal.
Example:
An actress signs a contract to act in a film. If the film later becomes illegal to produce, the contract is discharged — even if no one died or defaulted.
Key Rule:
Only illegality, death of the performer, or incapacity discharges a PSC automatically.
