Contract Essentials Overview Flashcards
(15 cards)
Step 1: What law applies?
UCC ARTICLE 2: Sale of Goods
COMMON LAW: Contracts for services
- Contract Formation
K = MA (O + A) + C - D
A contract is formed by mutual assent (offer and acceptance) plus consideration, with no valid defenses.
2a. Offers
Offers are
Ads are usually not offers.
Offers are generally revocable unless: paid-for option contract, foreseeable detrimental reliance, started performance under unilateral contract, OR merchant’s firm offer.
2b. Termination of Offer
Offers can be terminated. Termination can occur through
Lapse: Offer terminated if not accepted w/ reasonable time
Revocation: the offeror retracts the offer
Rejection: Counteroffer or conditional acceptance
Death
2c. Acceptance
Bilateral vs. Unilateral Contracts:
A bilateral contract is formed when both parties exchange promises to perform. A unilateral contract involves a promise by one party that is accepted only through performance by the other (e.g., “I’ll pay you $100 if you find my dog”).
Mailbox Rule:
Under the mailbox rule, an acceptance is effective when sent, not when received—unless the offer states otherwise or the offeree sends a rejection first.
Mirror Image Rule:
Under common law, acceptance must exactly mirror the terms of the offer. Any change is a counteroffer, not acceptance.
Under UCC Article 2, there is no strict mirror image rule. An offeree may include additional or different terms, and the contract is still formed—unless:
One or both parties are not merchants, or
The added term is material, or
The original offeror objects to the new terms.
2d. Consideration
Consideration is a bargained-for exchange of legal value that makes a promise enforceable. Each party must give something of value or incur a legal detriment. If there is no consideration, the agreement is generally not enforceable as a contract.
However, if one party reasonably relied on a promise to their detriment, and the promisor could foresee that reliance, the promise may still be enforced under promissory estoppel—even without consideration.
2e. Absence of defenses
Defenses to Contract Enforcement
Lack of Capacity: A contract is voidable if a party lacked capacity (e.g., minor, intoxicated, mentally incompetent).
Implied Affirmation & Necessities: A minor may still be liable for contracts involving necessities (e.g., food, shelter), and if they retain benefits after turning 18, that may serve as implied affirmation.
Mutual Mistake (e.g., the “Peerless” case): No contract is formed if both parties are mistaken about a basic assumption and the mistake goes to a material term—unless one party knew or should have known of the mistake.
Unconscionability: A court may refuse to enforce all or part of a contract that was extremely unfair or one-sided at the time of formation.
Economic Duress: A contract may be voidable if one party made an improper threat, and the other party had no reasonable alternative.
Statute of Frauds (MY LEGS): Certain contracts must be in writing, signed by the party to be charged, to be enforceable:
Marriage
Year (contracts not performable within one year)
Land (sale or transfer of interest in real property)
Executor promising to pay estate debts
Goods for $500+ (UCC)
Suretyship (promises to pay another’s debt)
This is one of the most frequently tested defenses on the bar.
Statute of Frauds
Statute of Frauds (SOF) – “MY LEGS”
Certain contracts must be in writing, signed by the party to be charged, to be enforceable. This is a heavily tested bar topic.
Covered Contracts (“MY LEGS”):
(1) Marriage-related promises
(2) Year: Cannot be performed within one year
(3) Land: Sale or transfer of real estate
(4) Executor’s promise to personally pay estate debt
(5) Goods for $500 or more (UCC)
(6) Suretyship (promise to pay another’s debt)
Writing Requirements:
UCC (Goods $500+): Must include quantity and be signed by the defendant.
Common Law Contracts: Must include all material terms (who, what, etc.) and be signed by the defendant.
Key Exceptions (No Writing Required If These Apply):
(1) Land Sale Contracts: No writing needed if 2 of 3 are shown: payment, possession, or improvements. Does not apply to leases under 1 year.
(2) One-Year Rule: If the contract has been fully performed, the SOF does not bar enforcement.
(3) UCC Goods $500+: SOF defense is lost if: (a) Goods have been accepted or paid for, or (b) there’s substantial beginning on custom goods.
(4) Judicial Admission: If the party admits in court that a deal was made, no writing is needed.
(5) Merchant’s Confirmatory Memo: Between merchants, a signed writing sent by one and not objected to within 10 days binds both parties—even if the other didn’t sign.
Terms
Parol Evidence Rule- no evidence of prior/contemp agrmts contradicting later integrated writing
exceptions: fix clerical errors, explain ambig terms, establish defenses
terms can also be interpreted, by course of performance > course of dealing > trade usage /custom
Warranties Art 2
Express waRRANTIES
Implied warranties: merchantibility (must be dealer of goods of that kind), fitness for purpose (seller must know of buyer purpose)
disclaimers: can disclaim implied warranties, not express. can limit remedies even for express warranties, unless unconscionable.
Risk of Loss
COmmon carrier - risk of loss passes to b when seller delivers to common carrier.
shipment contract - b bears risk of loss before ever receives goods.
delivery contracts - if s merchant, bears risk of loss until b receives goods. otherwise, non-merchant sellers shift risk as soon as tender goods.
Performance
common law - substnatial performance
article 2- perfect tender - sale of goods, performance must be 100% perfect or s can reject. sometimes seller can cure. curable if time for performance hasn’t occurred or if s had reasonable grounds to think improper Tedner was acceptable. Installment Ks cannot be rejected unless show substantial impairment bc latent defect before rejecting contract.
breach
material breach - excuses innocent party from performance
anticipatory repudiation - retractable unless relied upon already.
adequate assurance- must have reasonable grounds for insecurity, then can ask for ad assrnce, then if no assurance then treat as material breach
labor agrmts excusing og k - rescissions, modifications excused right now.
accord and satisfaction - if accord satsifed, original obligation excused
impossibility
frustration of purpose - both parties understand central purpose of contract.
failure of express conditions
Remedies
Specific performance rarely right answer. no amount of money adequate to compensate P and it is feasible to enforce.
no punitive dmgs
liquidated dmgs s/n be penalty, want graduated amount, no lump sums
expectation mgs - put injured party at same place at full performance. buyer damages - cover damages = cover price - contract price, mkt dmgs = mkt price - contract price, if keeps goods loss in value as promised - value as delivered. seller dmgs - resale dmgs contract price - resale price, mkt dmgs = contract p - mkt price, contract price if seller can’t resale goods, lost profits for lost volume seller.
incidental dmgs - cost incurred w dealing w breach always recovered, even if not foreseeable
consq dmgs, recoverable if foreseeable at k formation.
3p issues: Entrsutment - BFP prevails over OG owner. 3p benfcry - intended 3p benf can enforce rights of k and can sure directly. Assignment- 2 stp process, present transfer, no subst change of obligors duties (can’t make batman defend Chicago instd of gotham). delegation - transfer of work, not transfer of rights, one party finds replacement party to perform, OG party not excused.
Novation - agrmt to substitute new party for existing party, excuses replaced party under K. Allowed unless K prohibits or party has special skills.
