Contracts Flashcards
1
Q
Under the merchant exception to the UCC statute of frauds, a confirmation signed and sent by one merchant to another binds both parties if the recipient has reason to know its contents and does not object within how many days?
A
10 days
Ex: A ski-shop operator requested gloves for $600. The manufacturer orally accepted and faxed a signed memo confirming the agreement.
2
Q
What does the common law apply to?
A
everything but the sale of goods including contracts for real estate and services
3
Q
What are the three party beneficiaries that can enforce a contract entered into by other parties?
A
intended, creditor, donee [D
IC]
4
Q
a contract is best characterized as
A
A legally enforceable agreement
5
Q
For the parol evidence rule to apply, there must be a
A
written agreement and an earlier written or oral statement about the agreement.
6
Q
what is a novation?
A
the substitution of a new contract that releases the obligor from his promises under the original agreement
7
Q
Generally, if multiple assignments of the same rights are made without consideration…
A
the last assignee enjoys the assigned rights
8
Q
For a third party to qualify as an intended beneficiary, both the promisor and the promisee…
A
must have intended to convey enforcement rights to the third party in the event of a breach
9
Q
What is the main difference between contract modification under the common law and contract modification under the UCC?
A
Common law modifications require consideration (unless modification is fair and equitable due to unanticipated circumastances); under the UCC, only good faith is required.
+In the UCC, a modification can be made without consideration. Ex: contract to sell books and buyer later offers to include the bookshelf for free if the buyer accepts.
10
Q
What does a court consider when determining if restitutionary recovery is available in a quasi-contract situation?
A
The plaintiff has conferred a measurable benefit without gratuitous intent;
and it would be unfair to let the defendant retain the benefit
11
Q
What requirements must be met to allow an adversely affected party to void a contract based on mutual mistake?
A
Mistake of material fact existed at the time the contract was formed
The adversely affected party did not assume the risk of the mistake.
12
Q
Under the common law, if the breach is material, what remedies can be sought by the nonbreaching party?
A
The nonbreaching party is able to withhold any promised performance and pursue remedies for breach, including damages.
13
Q
Under the UCC, what is required by the “perfect tender rule”?
A
The perfect tender rule requires perfect goods and perfect delivery. “Perfect” means in accordance with the contract provisions or in accordance with the UCC if the contract is silent on tender.
14
Q
Define offer [entire rule statement]
A
An offer is an objective manifestation of a willingness by the offeror to enter into an agreement that creates the power of acceptance in the offeree. . The offer must include definite and certain terms and be communicated to an identifiable offeree. The UCC finds an offer more easily.
15
Q
Under the UCC, even if the terms of a written contract for the sale of goods appear to be unambiguous, what evidence can be presented to explain or supplement the contract?
A
Course of performance, course of dealing, and trade usage.
16
Q
Under the common law, what terms must be covered in order for a contract to be formed?
A
All essential terms meaning: the parties, subject matter, price, and quantity
17
Q
Under the UCC, in what two circumstances does the seller have a right to cure a defective tender?
A
The time for performance under the contract has not yet elapsed; or
The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity.
18
Q
What is the difference between a gift and valid consideration?
A
whether the offeree could have reasonably believed that the intent of the offeror was to induce the action.
If yes, there is consideration and the promise is enforceable.
19
Q
What are the requirements of a writing for contracts that fall under the Statute of Frauds?
A
The writing must:
Be signed by the party against whom enforcement is sought; and
Contain the essential elements of the deal.
+The signature requirement is met if an identifying mark from the party against whom enforcement is sought reflects an intent to authenticate the writing. Ex: An email that has the parties’ names below the word “signed” shows their desire to be bound.
20
Q
When a preexisting duty is at issue, what two options does a promisor have to create valid consideration?
A
The promisor can:
Give something in addition to what is already owed or
Vary the preexisting duty in some way
21
Q
If a SHIPMENT contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?
A
Once the goods are delivered to the carrier
22
Q
What is an output contract?
A
An output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer.
23
Q
If a DESTINATION contract authorizes the seller to ship the goods by carrier, when does the risk of loss shift from the seller to the buyer?
A
Once the goods are delivered to a particular place, as specified in the contract
24
Q
What three conditions must be met for the defense of impracticability to be available?
A
An unforeseeable event has occurred;
Nonoccurrence of the event was a basic assumption on which the contract was made; and
The party seeking discharge is not at fault.
25
At what point can repudiation no longer be retracted?
Repudiation may be retracted until such time as the promisee acts in reliance on the repudiation, signifies acceptance of the repudiation, or commences an action for breach of contract.
26
Define condition precedent.
A condition that precedes the obligation to perform
27
What are the three events that would cause the rights of an intended beneficiary to vest?
- Beneficiary materially changes position in justifiable reliance on the rights created;
- Beneficiary manifests assent to the contract at one party's request; OR
- Beneficiary files a lawsuit to enforce the contract.
Ex: A widow and widower were engaged to be married. After some discussion as to how to pay for the wedding, the son of the widow and the daughter of the widower each orally agreed to give $50,000 to the other’s parent as a gesture of approval of the upcoming union. The son and daughter shook hands in agreement as to the arrangement, but before either gift had been made, the two became embroiled in a serious disagreement, and both agreed to forego making the gifts. In spite of this, the son of the widow did make a gift of $50,000 to the widower at the time of the wedding. Soon after the marriage of the widow and widower, the widower died. Subsequently, the widow learned of the arrangement and sued the daughter of widower to compel her to pay $50,000. Is the widow likely to prevail? NO. None of the three situations in which an intended beneficiary's rights vest ever occured.
28
Define condition subsequent.
A condition that excuses the duty to perform after a particular event occurs
29
When is the warranty of fitness for a particular purpose implied, and how is it disclaimed?
The warranty of fitness for a particular purpose is implied whenever the seller has reason to know that (i) the buyer has a particular use for the goods, and (ii) the buyer is relying upon the seller's skill to select the goods. A disclaimer must be in writing and be conspicuous.
Ex: An artist explained to an employee of the merchant that the artist wanted to purchase a tool that could cut through steel. The employee suggested that the artist purchase a particular saw. The employee, said that the saw “should cut through steel with no problem.” The artist purchased the saw. Conspicuously appearing on the webpage where the artist had to indicate his consent in order to purchase the saw was the following: “There are no implied warranties provided with this product other than the general warranty of merchantability.” This was a valid disclaimer of the warranty of fitness for a particular purpose
Counter ex: A sales associate does not know the purpose for which the seamstress was buying a sewing machine but pointed out which one was the best. She bought it and it would not sew through thick leather. But there was no implied warranty for a particular purpose.
30
How is a unilateral offer accepted?
Acceptance of an offer for a unilateral contract requires complete performance.
31
What is the basic concept of legal detriment?
An exchange for the promise that is to be enforced.
32
When is a plaintiff entitled to restitutionary recovery, and how is it measured?
When a defendant is unjustly enriched by the plaintiff, restitution generally allows the plaintiff to recover the benefit conferred by the plaintiff upon the defendant. Generally, the benefit is measured by either (i) the reasonable value of the defendant obtaining that benefit from another source, or (ii) the increase in the defendant's wealth from having received that benefit.
33
Name the types of contracts that fall within the Statute of Frauds.
[M. SOUR]
marriage, suretyship, one year, UCC goods over $500, real property.
+the creation of a right of survivorship must comply with the SoF because it is considered a real estate contract
34
State the common-law mirror-image rule.
The common-law mirror-image rule states that the acceptance must mirror the terms of the offer. Any change to the terms of the offer, or the addition of another term not found in the offer, acts as a rejection of the original offer and as a new counteroffer.
The mirror-image rule does NOT apply to a sale of goods
35
Define incidental beneficiary.
One who benefits from a contract even though there is no contractual intent to benefit that person
+Ex: There is a contract between a hospital and a janitorial company to clean. Because of a failure to clean a room, a patient gets an infection. However, the patient cannot sue the janitorial company for breach of contract because the patient is only an incidental beneficiary
36
When may a nonbreaching party pursue specific performance as a remedy?
When damages are an inadequate remedy, the nonbreaching party can pursue specific performance.
37
Define fraud in the factum, and state its effect on a contract.
when the fraudulent misrepresentation prevents a party from knowing the character or essential terms of the transaction. No contract is formed, and the apparent contract is VOID.
38
Define fraud in the inducement, and state its effect on a contract.
Fraud in the inducement occurs when a fraudulent misrepresentation is used to induce another to enter into a contract. The contract is VOIDABLE by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.
39
What is a requirements contract?
A requirements contract is a contract under which a buyer agrees to buy all that is required of a product from the other party.
40
When is a revocation of an offer, sent by mail, effective?
Upon receipt.
41
Under the Second Restatement, can an extrinsic term that would "naturally be omitted" from a writing be introduced?
Yes, so long as it does not contradict the writing.
42
What are three forms of consideration?
Consideration can take the form of:
1. A return promise to do something or refrain from doing something legally permitted
2. The actual performance of some act
3. Refraining from doing some act
43
What is the difference between an assignment and a delegation?
An assignment is the transfer of rights under a contract, and a delegation is the transfer of duties and obligations under the contract.
44
If a party has substantially complied or performed with a constructive condition, what can the party recover?
In general, the party can recover the contract price minus any amount that it will cost the other party to obtain the promised full performance.
45
Under the UCC, what three requirements must be met for an offer to buy or sell goods to be an irrevocable firm offer?
(i) The offeror is a merchant;
(ii) There is an assurance that the offer is to remain open; and
(iii) The assurance is contained in a signed writing from the offeror.
46
What types of contracts are governed by the UCC?
Any contract involving the sale of goods
47
Define acceptance.
An acceptance is an objective manifestation by the offeree to be bound by the terms of the offer.
48
Define accord
An agreement to accept a performance from the other party that differs from the performance that was promised in the original contract. Consideration is required.
49
Define satisfaction
performance of an accord agreement; it will discharge both the original contract and the accord contract.
50
Define consideration.
bargained-for exchange of legal positions between the parties
Most courts conclude that consideration exists if there is a detriment to the promisee, irrespective of the benefit to the promisor.
51
Define the parol evidence rule.
The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or contemporaneous agreement that contradicts the terms of the contract as written. An agreement AFTER would not be affected by this rule
+such evidence is admissible to determine remedies for breach (e.g., to prove the foreseeability of consequential damages when an electric company told a manufacturer that late delivery could lead to not providing energy for an entire town)
52
Under the mailbox rule, when is acceptance effective?
An acceptance that is mailed properly (i.e., correct postage and address) within the allotted response time is effective when sent as opposed to on receipt, unless the offer provides otherwise.
+This rule can be overridden because the offeror is master of the offer (e.g., acceptance must be received, not sent, by a set date)
Ex: A violinist received an offer by mail to play a concerto. She accepted by mailing a letter. Later that day she realized she had a conflict and could not play so she called the orchestra manager. Regardless, the acceptance by letter controls (unless detrimental reliance occurs)
53
Under the UCC, when both parties are merchants, an additional term in the acceptance is automatically included in the contract, unless:
(i) The term materially alters the original contract (e.g., limits remedies); or
(ii) The offer expressly limits acceptance to the terms of the offer; or
(iii) The offeror has already objected to the additional terms, or objects within a reasonable time
+If the new term materially impacts the contract, the original terms still control
54
When is the implied warranty of merchantability implied, and how is it disclaimed?
The implied warranty of merchantability is implied whenever the seller is a merchant. The disclaimer can be oral, but must use the term "merchantability" and must be conspicuous if in writing. Language that indicates there is no implied warranty is sufficient (e.g., "as is" or "with all faults").
55
Define the common-law four-corners rule.
Under the common law, a court was permitted to look only to the writing itself (within the "four corners" of the document) for evidence of intent (regarding whether there is total, partial, or no integration).
56
What is an implied-in-fact contract?
An implied-in-fact contract is a contract that results when a person’s assent to an offer is inferred solely from the person’s conduct. To be contractual bound, the person must not only intend the conduct but also know or have reason to know that the conduct may cause the offeror to believe the offer was accepted.
+There is a mutual intent to contract
+Ex: A contractor, thinking that he was paving a customer's driveway, for which the contractor had an express contract, mistakenly paved the neighbor's driveway while the neighbor looked on without saying anything or raising any objection
57
What is an illusory promise?
An illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it. Such a promise is not legally binding (i.e., void).
58
How is a bilateral offer accepted?
An offer requiring a promise to accept can be accepted either with a return promise or by starting performance.
59
Define the material benefit rule.
Under the material benefit rule, when a party performs an unrequested service for another party that constitutes a material benefit, the modern trend permits the performing party to enforce a promise of payment made by the other party after the service is rendered, even though, at common law, such a promise would be unenforceable due to lack of consideration.
Ex: Shoveling snow for an elderly neighbor as a gift, but thinking "if anyone else used the sidewalk, he could charge them." the shoveler can charge anyone who uses the sidewalk but not the elderly person because it was a gift.
60
What are the three requirements for promissory estoppel [remember when there is no K]?
1) reliance was reasonably foreseeable,
2) actual inducement, and
3) detrimental reliance such that injustice can be avoided only by enforcement of the promise.
61
Define constructive condition of exchange.
When a party's performance can be rendered at the same time as the other party's performance, each party's performance is conditioned on the other party's performance; both parties' performances are due simultaneously, unless the language or circumstances indicate otherwise
62
What is the difference between a void and voidable contract?
A void contract results in the entire transaction being regarded as a nullity, as if no contract existed between the parties; the contract is unenforceable.
A voidable contract operates as a valid contract unless and until one of the parties takes steps to avoid it.
63
What happens to a gratuitous assignment—i.e., an assignment that is not supported by consideration—when the assignor dies, is incapacitated, or bankrupt?
the gratuitous assignment is automatically revoked
64
When is the acceptance of a firm offer, option, or other irrevocable offer effective?
when the acceptance is received by the offeror
65
What are the 5 factors considered in determining a material breach?
BELTS materials
- Bad faith/willfulness
- Extent to which nonbreaching party will suffer loss
- Likelihood of cure by breaching party
- Time is not of the essence
- Substantial performance
66
What happens if an offeree acquires reliable information that the offeror has taken definite action inconsistent with the offer?
the offer is automatically revoked (i.e., constructive revocation) and can no longer be accepted.
67
When can a plaintiff recover under a quasi-contract theory—despite having no contractual relationship with the defendant?
the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.
Ex: A rancher takes care of a horse that comes onto his property during a storm. The rancher is then entitled to reimbursement for the expense (food, vet visit).
68
What happens if the offeror dies, but the option contract still exists?
The offer will not terminate upon the offeror's death because consideration was paid to keep the offer open for a specified period of time.
69
What are the five ways an offer can be terminated?
revocation, rejection, counteroffer, lapse of time, death/permanent mental incapacitation
70
What are the defenses to the formation of a contract? [basically no K was ever formed]
```
[MUM IF ID CUM]
mistake
undue influence
mistake
incapacity
fraud/misrepresentation
illegality
duress
condition precedent not met
unconscionability
mutual assent
```
71
What are the 6 defenses to the enforcement of a contract?
SUFIII
```
statute of frauds
unconscionability
frustration of purpose
impossibility
impracticability
illegality
```
72
What are the eight possible remedies available for breach of contract?
PENCILS RRR
```
punitive
expectation
nominal
consequential
incidental
liquidated
specific performance
restitution
replevin
reliance
```
73
What are the three element that must be shown to award consequential damages?
foreseeability, causation, certainty (of calculation) [FCC]
74
What universe does building a fence fall under in which the contract consists of paying for materials and service?
The predominant purpose is a service, building a fence, so it is in the common law universe.
75
Which universe is a contract to pay to write four computer programs?
This is a services contract, so it is in the common law universe
76
What are gaps that cannot be filled by the UCC?
quantity, identity, subject matter
77
When does the warranty of merchantability apply?
when the seller is a merchant in the goods sold
78
What happens when the subject matter of an offer is destroyed?
the offer is terminated
79
When is it not permitted to delegate contractual duties?
when the other party to the contract has a substantial interest in having the delegating party perform or;
the contract prohibits delegation
80
Under the doctrine of promissory estoppel, a party's promise to make a gift is enforceable when:
(1) the promisor should reasonably expect the promisee to rely on the promise,
(2) the promisee detrimentally relies on the promise, and
(3) injustice can be avoided only by enforcement of the promise.
Ex: An uncle promised to give $5k to a spendthrift nephew on his birthday new month and said you'd better spend it wisely or you'll never get another dime. The spendthrift then signed a contract for a car to pay a $5k down payment on his birthday. The promise to pay is unenforceable, but through promissory estoppel this is now enforceable
81
What happens if the buyer in a requirements contract later buys from another seller?
this purchase violates the implied duty of good faith and constitutes a breach of contract
82
During a reserve auction, can the auctioneer withdraw goods from auction prior to completion of the sale (e.g., before the auctioneer's hammer falls)?
Yes in a reserve auction, which is the presumptive type. In a no-reserve auction, this cannot happen.
83
What happens if a debt is certain and undisputed?
payment cannot be for a lesser amount, even if the creditor cashes the check.
84
When can an accord be worth less than what was owed under the original contract?
That consideration can be worth less than what was agreed to in the original contract only if:
1) there is a good-faith dispute as to the amount owed or
(2) the new consideration is of a different type than what was owed under the original contract.
85
Is a new promise to pay a debt after the statute of limitations has run enforceable, even though there is no consideration?
yes
86
What are some ways that the warranty of merchantability can be disclaimed for defects that an examination would have revealed?
- the buyer examines the goods as fully as desired before entering the contract
- the buyer refused to examine the goods before entering the contract
- "as is" or "with all faults" language
87
In interpreting a contract under the UCC, what is the hierarchy of evidence that can be used, from most valuable to least?
[PDT], [pacific daylight time]
1) express terms of the contract
2) course of Performance (current transaction)
3) course of Dealing (past transactions between the parties)
4) Trade usage
88
Under the UCC, what is required to modify a contract?
only good faith (honesty in fact and fair dealing per reasonable commercial standards)
89
Under the UCC, an offer will terminate by lapse after a reasonable period of time if no termination date is specified. What three factors are considered when determining a reasonable amount of time?
(1) the nature of the contract,
(2) the purpose and course of dealing between the parties, and
(3) trade usage.
90
When is nonoccurrence of a condition excused?
1) waiver (by word or conduct)
2) wrongful interference (party wrongfully prevents the condition's occurrence)
3) estoppel
4) disproportionate forfeiture
91
When may a court reform a written contract due to mutual mistake?
- there was a prior written agreement,
- there is a difference between the prior agreement and the writing due to the mistake.
Ex: In a land conveyance, a clerical mistake in a later writing of the agreement included 2 acres that were beyond the original agreement
92
Normally the winning bidder in an auction can avoid the sale or pay the price of the last good-faith bid if the auctioneer 1) knowingly accepted a bid by the seller or on the seller's behalf or 2) procured the seller's bid to drive up the price of the goods. However, the winning bidder may not do this when:
- the seller bid at a forced sale (e.g., a foreclosure sale); or
- the seller gave notice reserving the right to bid
93
A promise to make a gift is generally unenforceable because it does not involve the bargained-for consideration required to form a valid K. What is a notable excpeption to this rule?When is a charitable subscription—i.e., a written promise to contribute money or property to a charitable institution—enforceable on promissory-estoppel grounds?
Charitable subscriptions which are written promises to contribute money or property to a charitable institution. All l that is needed is proof that the promisor reasonably expected to induce reliance on the promise.
94
when an assignment is made without consideration (i.e., a gratuitous assignment), it is revocable by the party assigning rights to another unless:
the right has already been assigned or the assignee has detrimentally relied on the assignment
- --
1) the obligor (i.e., the party obligated to perform) has already performed
2) a document symbolizing the assigned right has been delivered to the assignee
3) a written assignment signed by the assignor has been delivered to the assignee or
4) the assignee (i.e., the party receiving assigned rights) has detrimentally relied on the assignment
95
At a reserve or no-reserve auction, when can the bidder withdraw?
Reserve: the auctioneer may withdraw the goods any time before she announces completion of the sale. An auction is with reserve unless specifically announced as a no-reserve auction.
No-reserve: after the auctioneer calls for bids on the goods, the goods cannot be withdrawn unless no bid is received within a reasonable time.
+ However, in both cases, a bidder's retraction will not revive any prior bids.
Ex: A for 100. B for 200. B withdraws. This does not mean that A wins.
96
Under the UCC, can a merchant, who makes assurances that the offer is to remain open through signed writing, later modify the offer before the original offer expired?
No. In this situation even though no consideration was given, the merchant cannot modify the offer.
97
What is a donee beneficiary?
A third-party beneficiary of a contract to whom the promised performance comes without cost as a donation or gift.
98
When can the donee beneficiary sue the promisee?
only if:
(1) the promisee told the donee beneficiary about the contract,
(2) the promisee should have reasonably foreseen reliance, AND
(3) the donee beneficiary justifiably and detrimentally relied on the contract.
99
the contract is no longer voidable if, following a misrepresentation but before the deceived party has avoided the contract, the facts are cured so as to be in accord with the facts that were previously misrepresented.
o
100
Generally, unless consideration is given to keep an offer open, the offeror can withdraw an offer at any time prior to its acceptance by the offeree, even an offer that the offeror states is irrevocable.
However, a firm offer made by a merchant-offeror in a signed WRITING is irrevocable for the stated time period, where such period is three months or less
+Remember that while a firm offer may be revoked after 3 months, it is not automatically revoked. The merchant-offeror still has to do so
101
The seller must give notice of the intent to cure and make a new tender of conforming goods. If the seller had reasonable grounds to believe that the buyer would accept despite the nonconformity, the tender must be made within a reasonable time. Once cured, the tender is considered proper and valid.
This exception to cure when the seller has reason to expect acceptance permits the goods to be cured EVEN AFTER the time for performance has elapsed
+This exception that allows late delivery only applies if the seller had reasonable grounds to believe the buyer would accept the nonconforming goods
102
A landowner entered into a written contract to sell five acres of land to a buyer for $50,000. The buyer agreed to pay for the land in installments, with $10,000 due on the date on which the contract is executed, and $10,000 due each year thereafter on the anniversary of that date. The contract was silent as to the date on which the landowner is to deliver the deed to the buyer.
On what date must the landowner deliver the deed to the five acres of land to the buyer?
The fourth anniversary of the execution of the contract, when the buyer tenders the last installment payment.
When only one party’s performance of his contractual duty requires a period of time, that party must complete his performance before the other party is required to perform, unless the language or circumstances indicate otherwise.
103
What are the damages for failure to perform a real estate contract?
Damages for failing to perform a real estate sales contract are measured by the difference between the contract price and the market value on the date of the breach.
104
What happens if a communication rejects the offer and then a later communication accepts the offer?
if a communication is sent rejecting the offer, and a later communication is sent accepting the contract, the mailbox rule does not apply, and the first one to be received by the offeror prevails. The offeror need not actually read the communication that is received first for it to prevail
105
If there is no liquidated damages provision, the what is the seller's offset?
the greater of the following
- actual damages (ED + ID)
- statutory damages ($500 or 20% of the total contract price, whichever is smaller)
106
What is the doctrine of frustration of purpose?
The doctrine of frustration of purpose applies when an UNEXPECTED EVENT arises that destroy one party’s purpose in entering into the contract, even if performance of the contract is not rendered impossible.
107
full performance by either party to the contract will generally negate any violation of the Statute of Frauds
o
108
Under the UCC, the buyer has the right to inspect the goods before deciding whether to accept or reject.
o
109
Hypo: where tourist promises not to sue rock climbing guide for negligence in exchange for money. It is later found that the guide was not negligent. Can the tourist still recover the money?
Yes because at the time of contracting, the tourist believed they had a valid claim for negligence
110
Only an intended beneficiary whose rights under a contract have vested can sue to enforce a contract. What is a hypo demonstrating this?
A husband contracting an artist to paint his wife. Due to an affair, the husband breaks the contract but the wife still wants the painting but her rights have not vested
111
What does a seller need to show to be considered a "lost volume" seller?
the seller needs to show that it could have supplied both the breaching purchaser and the resale purchaser with the goods
112
What is a lost volume seller entitled to when the buyer breaches?
the lost profits of the sale
113
When may a court reform a written contract due to unilateral mistake?
i) The mistake would make enforcement of the contract unconscionable; or
ii) The non-mistaken party caused the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should have known that the other party was mistaken.
114
For a unilateral mistake to form the basis for rescission, there must be an absence of serious prejudice to the other party.
o
115
What are the requirements of fraudulent misrepresentation (fraud)?
[FIIJA]
- a False assertion of material fact made knowingly, or recklessly without knowledge of its truth
- with Intent to mislead the other party
- that Induced assent to the contract
- Justifiable reliance
- Actual economic damages
+It does not have to be a malicious falsity (e.g., fraud could occur if the seller honestly says the odometer is working, but its actually wrong)
116
What are goods?
movable, tangible property
117
What are the three parts of a valid contract?
offer, acceptance, consideration
118
What is a revocation?
direct (or indirect as it can come from a third party), unambiguous words or conduct that demonstrates an intent not to enter into the proposed contract of which the offeree is aware
119
What happens if the offeree sends an acceptance and later sends a rejection?
The acceptance will generally control EVEN if the rejection is received first. However, if the offeror receives the rejection first and detrimentally relies on it, then the offeree will be estopped from enforcing the contract.
120
In the UCC what happens when one party or more is NOT a merchant and there is an additional term in the acceptance?
any additional term is a proposal and will not become a part of the contract unless the other party assents
121
What are the three approaches to dealing with different terms between the offer and acceptance?
1) knock-out rule (majority)
2) fall out rule: offeror's terms control
3) common law: like the knock-out rule as the court will fill gaps on a "reasonable basis" if necessary
122
What is the knock-out rule?
conflicting terms cancel each other out and neither enters the contract. The contract then consists of the agreed-to terms and the court will supply missing terms if needed
123
What happens if the shipper sends nonconforming goods and acknowledges they are nonconforming?
This is an accommodation and serves as a counteroffer that the buyer is then free to accept or reject
No contract is formed because an accommodation is not acceptance
124
What happens if the shipper sends nonconforming goods and DOES NOT acknowledge they are nonconforming?
The shipper accepted AND BREACHED the contract
125
What is the general rule on past consideration?
A promise to pay for a benefit received in the past will not provide current consideration on a new bargain, with two exceptions
126
What are the four situations, lacking consideration, where a contract may nevertheless be found?
1) a new promise to pay a debt that is now barred can provide valid consideration if it is made in writing or partially performed
2) a promise to perform a voidable duty
3) the material benefit rule (when a party performs an unrequested service that constitutes a material benefit)
4) promissory estoppel
127
What happens if the oral modification itself falls into the SoF?
the modification must be in writing. If it is not in writing then the modification is unenforceable
128
Define creditor beneficiary?
A third party whom the promisor intends to benefit because the promisor owes him money
129
What happens if the contract forbids assignment, but the rights are still assigned?
The contract is breached, but the assignment will likely still be enforceable
130
When the conduct of a party is not unequivocal enough to rise to the level of an anticipatory repudiation, but does cause reasonable grounds for insecurity about the forthcoming performance, what can the insecure party demand?
Adequate assurances of due performance.
| This assurance must be in writing
131
After receiving a justified demand for adequate assurances, how long does the party have to respond before repudiating the contract?
the party must respond within a reasonable amount of time, not to exceed 30 days
+A party making a written demand for assurances must have reasonable grounds. Just wanting to be extra sure is not enough and the other party can ignore the demand
132
When is a breach of contract a material breach?
when there was not substantial performance on the contract
133
What happens if there is a minor breach?
the nonbreaching party may recover damages, but must still perform
134
Define impossibility?
a supervening, unforeseeable event makes performance impossible and thus discharges performance
+Impossibility does not apply if the seller assumed the risk of the event (e.g., a tech company promising a computer, but later learning that the tech is not ready)
135
What universe does an offer for a vacation fall into?
common law
136
What are the requirements of an offer?
KILT I
1) knowledge by the offeree
2) intent
3) language (words of promise)
4) terms (certain and definite)
5) invitation to deal
137
If there is no valid K, see if there may be an argument for promissory estoppel
o
138
In determining whether a liquidated damages clause is reasonable, what is the standard rule of thumb courts use?
10 or 15% of the purchase price is typically deemed reasonable
139
Under the UCC, when a contract deals with specifically identified goods that are completely destroyed, when is performance excused for both parties?
1) if the destruction occurred without fault of either party AND
2) the destruction occurred before the risk of loss passed to the buyer
Ex: A painting is purchased and before delivery, the gallery burns through no one's fault. The contract is avoided.
140
When one party's performance requires the passage of time, when must the other party perform?
The other party must perform once there is full performance
Ex: An agreement to pay 100k for four years requires transfer once all payments are made.
141
When does a person lack capacity to contract due to intoxication?
1) that person was too intoxicated to reasonably understand the nature or consequences of the contract and
2) the other party had reason to know of the intoxication.
142
A promise to make a gift is generally unenforceable because it does not involve the bargained-for exchange that is required to constitute valuable consideration.
o
143
What is duress?
Duress is an improper threat that deprives a party of meaningful choice.
+Even threatening criminal prosecution when the person actually committed a crime falls under duress.
+Being threatened, but a few days later signing would not qualify as duress because the threat was not imminent
144
When may a nonbreaching seller reclaim goods sold on credit?
The seller may reclaim goods from a buyer when the seller (1) discovers the buyer received the goods on credit while insolvent and (2) demands the goods be returned within 10 days after their receipt. But this 10-day limitation does not apply if the buyer misrepresented its solvency in WRITING within three months before delivery.
145
the risk of loss immediately passes from the seller to the buyer when the buyer repudiates or breaches a contract that deals with identified goods (e.g., the sports legend's memorabilia). When this occurs, what can the seller recover?
The seller in this situation can recover any deficiency between the seller's insurance coverage and the contract price within a commercially reasonable time.
146
What is the buyer entitled to when the seller breaches a land-sales contract?
the buyer can recover for the loss of the bargain (i.e., the fmv of the property on the date of the breach minus the contract price)
147
When does the seller's insurable interest cease? When does the buyer's insurable interest begin?
The seller's insurable interest ceases when the seller delivers
The buyer's insurable interest begins when the goods are identified (by explicit agreement in the contract, shipped, or marked)
[remember: when does the property gain some ownership and when can the seller rest easy knowing they do not own it anymore]
148
What happens if a debt is disputed in good faith and the debtor gives the creditor a check with conspicuous "payment in-full" notation. The debtor then cashes the check?
The debt is discharged once the check is cashed. This is an example of an implied accord and satisfaction
149
What happens if a party reserves a right to cancel?
No contract is formed. The promise is illusory
150
What happens in a bilateral contract when the offeree should know that the offeror has no convenient way of learning within a reasonable time that performance has begun?
the offeree must notify the offeror. Otherwise, the offeror's contractual duty will be discharged
Ex: A bilateral contract to paint a house. The painter says "I'll try" and the owner leaves for a long business trip. Here, the painter must notify the owner that he has begun performance because the painter should know that the offeror has no convenient way to know
151
When must a modification of a UCC contract be in writing?
generally they do not need to be in writing except if the modification changes the subject matter or the quantity of goods to be sold
152
Who must prove a condition precedent?
the plaintiff must prove that the event occurred
[remember precedent=plaintiff]
153
Who must prove a condition subsequent?
the defendant must prove that the event occurred to avoid liability
154
When does the UCC SoF exception apply in a contract between two merchants?
If both parties are merchants and one party sends written and signed confirmation, the contract will be enforceable against both parties up to the quantity term stated in the confirmation if:
- the recipient receives the confirmation and has reason to know of its contents AND
- the recipient fails to object to the contents in writing within 10 days of receiving the confirmation
155
What is the assumption when a party makes a general assignment of an entire contract to another party?
this will be construed as giving the party all rights and duties
Ex: A sugar requirement contract with a bakery for one year. The distributor sold its business and contracts to another sugar retailer.
156
A contract for the purchase of candies requires that the purchaser select the candies by a certain date. A day after this date, the buyer makes the selection. Is the contract enforceable?
Yes, because the delay of one day in making the selection did not have a material effect on the seller
157
What happens, in the UCC, if the buyer fails to timely make a selection AND the delay materially impacts the seller's performance? Ex: the candy hypo
The seller can proceed in any reasonable manner (e.g., choose a reasonable assortment of goods) OR treat the buyer's non-selection as a breach
158
What signifies that a contract is a shipment contract?
FOB seller's place of business
+Remember S for seller and shipment
159
What suggests that a contract is a destination contract?
FOB buyer's place of business
160
When is a suretyship NOT subject to the statute of frauds and therefore an oral contract is enforceable?
when the suretyship is made for the promisor's own economic advantage
Ex: A father is a surety to a loan for his daughter for her to buy a car. The SoF does not apply because the suretyship was primarily made to benefit the daughter.
161
A wholesaler requests 1000 widgets for 10k, The manufacturer responds by mailing an acceptance form with an additional clause limiting the manufacturer's liability for breach to $100. What is the situation once the wholesaler receives the letter?
there is an enforceable contract whose terms do not include the liability limitation clause. This was a material alteration because it limited available remedies.
162
What is the rule on "no oral modification" (NOM) clauses?
the UCC will enforce them. But the clause can be waived through the parties' words or conduct.
Common law ignores NOM clauses and allows written contracts to be modified by subsequent oral agreements unless the modified contract falls within the SoF
Ex: Contract for goods had a NOM clause. Manufacturer called to say it would need more time to deliver. Buyer agreed in the phone call to postpone the delivery date. Therefore, while there was a NOM clause, it was waived.
163
A debtor and creditor modify a loan from paying every first of the month to 5th of the month if debtor pays in cash. Creditor assigns their interest. Can they continue to insist on payments on the 5th?
Yes. The creditor can only assign those rights the creditor had in the contract at the time of assignment
164
What is a contract that requires the seller to deliver the goods by a 3rd party carrier but does not specify a delivery location?
a shipment contract
165
In a single writing, a painter contracted with a farmer to paint 3 identical barns for $2,000 each. The contract provided for the farmer's payment of $6,000 upon the painter's completion of the work on all three barns. The painter did not ask for payment when the first barn was completely painted, but she demanded $4,000 after painting the second barn. Is the farmer obligated to make the $4,000 payment?
No, because the farmer has no duty under the contract to pay anything to the painter until all 3 barns have been painted
166
A nephew filed a suit contesting a will even though the nephew knew he did not have a good-faith case. The executor offered the nephew $5,000 to settle the suit and the nephew agreed. If the executor repudiates, is the nephew entitle to recovery?
No, because the nephew did not bring the will contest in good faith.
A promise to surrender a claim or defense constitutes consideration for a settlement agreement so long as the claim or defense is valid or subject to a good-faith dispute OR the surrendering party believes that the claim or defense may be valid
167
A contractor gets subcontracting bids for 1.25, 1.3, and 1 million. The contractor goes with the 1 million bid even though the contractor expected a higher number. The low number was due to a careless omission. The subcontractor will make no money, but the contract will not be unconscionable. Can the subcontractor avoid the contract?
Yes, because the general contractor had reason to know of the mistake
Unilateral mistake is not grounds to avoid a contract unless:
- the mistake would make enforcement of the contract unconscionable OR
- the nonmistaken party caused, or knew or had reason to know of, the mistake
168
What is an intended beneficiary?
a beneficiary who receives a direct benefit from the contract because other contracting parties intended to benefit the beneficiary
Ex: Two children agree to give their mother $500 each month so that the mother can afford a live-in companion. If either of the children breaches the contract, the mother can sue because she is an intended beneficiary
169
What is the rule on what type of acceptance is ok?
Unless the offer provides for the means of acceptance, any reasonable means will suffice.
170
What are the exceptions to the usual rule that UCC goods over $500 must satisfy the SoF?
- specially manufactured goods
- acceptance by seller or buyer
- failure to respond to a memorandum (when both parties are merchants)
+For the specially manufactured goods exception to apply, the goods cannot be suitable for sale to others (e.g., a contract for a specially manufactured car that does not comply with the SoF but it is later sold to another customer)
171
What happens if the buyer of an indivisible good that requires compliance with the SoF gives a partial payment?
the entire contract is enforceable even though the SoF was not followed
172
What happens if the buyer of separable goods that require compliance with the SoF gives a partial payment?
the contract is enforceable up to the quantity of goods paid for in full
173
A retailer offers to buy as many widgets as possible by May 6. The manufacturer responded by saying, "Order received. Delivery by May 7." What is the result?
When a contract is under the UCC and both parties are merchants, the "knock out" rule applies. Therefore both dates will be knocked out and delivery will be required within a reasonable time
174
A businesswoman entered into a K with a painter to paint her office for 1k. The painter commenced work and had finished half of it when he went home. That night, without the fault of either party, the office building was destroyed by fire. What is the contractual situation?
Both parties' contractual duties are discharged, but the painter can recover in quasi-contract from the businesswoman
175
A hunter disclosed to the firearm seller that he was purchasing a new gun on credit to shoot turkeys even though it is not yet turkey season. If the hunter never paid back and the seller sues for breach of contract, what is the result?
The seller will win because the seller substantially performed and did not sell the gun in order to further the hunter's illegal purpose
Illegal contracts are usually void and there is no recovery for breach. However, a party who substantially performed and lacked an illegal purpose may recover, even if he knew of the other party's illegal purpose, unless the performing party took action to further that illegal purpose OR the purpose involves grave social harm.
176
What is required for a liquidated damages clause to be enforceable?
At the time of contracting
- the amount of liquidated damages was reasonable AND
- actual damages were uncertain and difficult to prove
177
In general, an offer can be revoked by the offeror at any time prior to acceptance, even if it states it will remain open for a specific amount of time, unless the offer is a firm offer or is made irrevocable by an option contract.
o
178
A homebuyer was discussing the purchase of a house with the seller. Of particular concern to the buyer was whether the house had a termite problem. The seller, aware of the buyer’s concern, ordered an inspection from a licensed inspection company. The company issued a report stating that the house was free of termites. In fact, the company’s inspector was negligent, and the house’s foundation had a modest termite problem. Relying on the report, the seller told the buyer that the house was free of termites. The buyer is seeking to avoid the contract. Will he prevail?
Yes, because the buyer reasonably relied on the misrepresentation. Even though the misrepresentation was not fraudulent, it nevertheless renders the contract voidable.
179
What is the rule regarding contracts with minors?
Contracts with minors are voidable, but only by the minor.
180
What is the consequence of a failed condition precedent?
the only result is that it relieves a party from the obligation to perform. The other party cannot sue for money damages due to a failure to comply with a condition precedent
181
The owner of a new office building contracted with a well-known landscaper to design and install landscaping around the building for $30k. The agreement was memorialized in writing and called for a budget of $5k for trees, shrubs and materials. Is this a service or goods contract?
This is predominantly a services contract. The predominant purpose of the contract was rendering of services. The landscaper was likely hired due to her skills and the price of the goods was only a small portion of the total contract
182
What are factors courts consider in determining the predominant purpose of whether this was a contract for goods or services?
LVSF
- Language
- relative Value of goods and services
- nature of the Supplier's business
- nature of the Final product
183
Advertisements are generally considered invitations to negotiate and therefore create no power of acceptance in the recipient. What is the exception to this rule?
the advertisement:
- specifies the subject matter, quantity, and price AND
- places a reasonable limit on who can accept the offer
Ex: A newspaper ad that says "Sale! Fur coats this weekend only for $100." There is no offer and this was merely an invitation to negotiate.
184
A rancher and veterinarian enter into a written agreement for the rancher to pay the vet's monthly mortgage. This is done because both parties want to avoid paying taxes. The rancher later stops making payments. If the vet sues the rancher, what is the likely recovery?
Nothing, because the contract had an illegal purpose it is void and there is no remedy for the breach.
+In limited situations, a party to an illegal contract can recover either expectation damages (e.g., if the party was ignorant of the illegality) OR restitution damages (e.g., if the party was less culpable than the other party)
185
A party who anticipatorily repudiates an already formed K may retract the repudiation by notifying the other party of the retraction before:
nonrepudiating party
- cancels the contract
- materially changes position in reliance on the repudiation
- indicates she considers the repudiation to be final
186
Once a delegation of a contractual obligation occurs, the delegating party remains liable under the contract unless the other party agrees to a release
Ex: A musician enters into a contract with interior decorator A to design the music studio. This duty is delegated to interior decorator B. If interior decorator B fails to perform, the musician can sell both interior decorators
187
A buyer repudiates a contract for specially manufactured goods. The price per good is $10, the cost to manufacture is $8. Upon repudiation, the seller sells the goods to a salvage company for $2 per set. What damages should be awarded to the seller.
The seller will be placed in the same position as if the K had been performed. Here, the seller is entitled to expected profits plus costs reasonably incurred minus any proceeds from reselling the goods
Therefore $8 per good.
188
A landowner delivered a deed to a man and said "this is yours, but please do not record until after I am dead." The landowner soon dies intestate. Who properly holds the land?
the man because the deed was delivered to him. There was a presumption of delivery if the grantor hands the deed to the delivery. Evidence that the grantor gave the deed to the grantee subject to an oral condition is inadmissible.
189
What is an example of undue influence?
A live-in caregiver tells the widow that she must sell her profitable business to him or she will quit and there is no other caregiver in the area (which is not true). This is not duress because the widow could have found a replacement caregiver
Undue influence occurs when assent stemmed from unfair or excessive persuasion by someone who dominated or shared a special relationship of trust with the assenting party
190
What is the one year SoF rule?
Contracts that cannot be performed within one year must be in writing
The clock begins the day AFTER the contract is made
191
Does an oral K that is measured by a lifetime need to be in writing to satisfy the SoF?
no it is not within the SoF because it is capable of being performed within 1 year (if the person dies)
192
What is the rule regarding capacity?
Parties to a K must be competent.
193
What is the rule regarding mental illness and competency?
- If an individual is adjudicated mentally incompetent, a purported contract made by the individual is void.
- a contract is voidable if the individual is unable to understand the nature of the transaction OR act in a reasonable manner and the other party has reason to know of this fact
+if the K is made during a lucid period, the K is full enforceable
194
What happens if neither party to a K knows or have reason to know about a misunderstanding involving a material term?
no K is formed
195
When a written confirmation is sent by one merchant to another merchant what is required for this to bind both parties?
- confirmation sent within reasonable time
- -the confirmation satisfies the SoF as to the sender AND
- the recipient does not object in writing within 10 days
+remember the confirmation needs to include quantity
+signature requirement can be satisfied by letterhead
196
A subcontractor used the wrong kind of steel which violates the express terms of the K (material breach). If the subcontractor sues for performance, what is the result?
A party in material breach CANNOT sue to recover contract damages
197
If a breach delays the use of property, the nonbreaching party may recover damages based on 1) the fair market value of the property during the delay period OR 2) interest on the value of the property made unproductive by the breach
Ex: A farmer signed a contract for land for 500k. On the date of delivery the land is not transferred and it takes 2 weeks, the farmer is entitled to the rental value of the land for those 2 weeks
198
Two parties have a contract for soybeans and then make a contract for wheat. Before the time for delivery of the soybeans, the seller notified the buyer that it would not deliver the wheat because the seller's wheat supplier had refused to extend additional credit. How does this impact the soybean contract?
It gives the buyer the right to make a written demand for assurances that the seller will perform the contract.
199
What is the majority rule for prepayment of a mortgage?
a debtor has the right to prepay a mortgage debt unless the mortgage provides otherwise. But prepayment prohibitions or penalties in a mortgage ARE generally valid and enforceable
200
A law firm offers an employment contract that says the employee will become a partner in 4 years if the employee's performance reviews are satisfactory. What is the legality of this clause?
It may be an illusory promise because the law firm has discretion whether to honor the agreement. However, performance could also be determined based on objective measures. Ultimately, a court would likely find that the law firm would use its best efforts in good faith when reviewing the employee.
201
What is the effect of part performance and full performance on the SoF?
part performance by a party does not take the contract out of the Statute of Frauds, but merely makes restitution available to the party who performed.
full performance takes the contract out of the Statute of Frauds
202
What is a release?
A release is a writing that manifests intent to discharge another party from an existing duty. For common-law contracts, the release must generally be supported by consideration to discharge the duty.
203
A Painter contracted to paint three identical apartment units for $1k each. The contract provided for the manager's payment of $3k upon the painter's completion of the work on all three units. The painter demanded $2k after the first two units were painted and terminated the K. What is the painter entitled to recover?
The reasonable value of the painter's services in painting the two units, less the manager's damages, if any, for the painter's failure to paint the third unit
204
Rescission is the avoidance of a contract so as to put the parties in the place they were immediately prior to the contract. A court will only grant rescission if the party has the grounds to seek it and there must not be any defenses to the granting of it.
o
205
Bring up laches and unclean hands in any discussion of equitable remedies, even to just briefly mention that it does not apply
o
206
A firm orally agreed to employ an executive for his lifetime. The parties negotiated and have agreed to all aspects of the employment except for the executive's salary, on which they remain several thousand dollars apart. The executive has sent a signed letter to the firm confirming the terms to which the parties have orally agreed while acknowledging that the salary has yet to be set. The firm has not responded to the confirmation letter.
Do the parties now have an enforceable contract?
No, because the agreement is too indefinite to be enforced. In a common law K, all essential terms must be covered for it to be valid and enforceable.
207
A contractor and a landowner contracted to build a house. The parties agreed the price would increase by the amount that lumber increased from its then $30 price per foot. The contract was formed, but the price-escalation clause was omitted. Neither party noticed. The landowner later refuses to honor this clause. If the contractor sues the landowner to recover the additional cost, will the contractor be likely to prevail?
yes, because the parties were both mistaken as to the content of the writing, the court will reform the writing to express their agreement
208
What happens when there is an installment contract, a nonconforming installment is offered, but with adequate assurances that the nonconformity can be cured?
the buyer must accept the shipment. However, the buyer can deduct any damages for losses due to the nonconformity
209
Under the common law, what happens when a contract is formed that is missing a nonessential term?
the court will supply a reasonable term under the circumstances to fill the gap
210
What is the objective theory of contracts?
it requires a party to be bound by a contract term even if that party is not subjectively aware of it
211
There is a contract between a commercial fishing company and a seafood cannery during the "summer season." There is a dispute over whether "summer season" means the trade usage or the common usage. Which would a court apply?
Even if the parties honestly applied different meanings, the court would likely use the trade usage meaning since both merchants work in this industry
212
A carpenter owed a bank $22k. The carpenter and homeowner entered into a K under which the carpenter agreed to perform work for the homeowner and the homeowner agreed to pay $22k to the bank. The carpenter completed the work, but the homeowner incurred costs of $2k to correct minor deficiencies. What amount is the homeowner obligate to pay the bank?
$20k, because the bank, as an intended beneficiary of the homeowner's contract with the carpenter, stands in the position of the carpenter
213
A builder is in material breach on a K. What recovery is the builder entitled to?
A party who is in material breach can only recover restitution damages
214
A landscaper contracted to install a sprinkler system, but willfully contradicted the terms of the contract (used a comparable sprinkler head and no backflow device, which is required by the city code). What is the landscaper entitled to?
The contract price less the cost to remedy any defects in performance. Despite the violations of the contract, the landscaper fulfilled the main purpose of the contract (installing a sprinkler system) and thus substantially performed.
215
Generally, at common law, clauses that seek to invalidate modifications that are not in writing are themselves not valid.
o
