Contracts Flashcards
Revocation is Effective When
A revocation is generally effective when received by the offeree.
A written communication is considered to have been “received” when 1) it comes to a person’s attention or 2) it is delivered at a place of business through which the contract was made.
The communication does not need to be read by the recipient for it to be effective.
UCC Merchant’s Firm Offer Rule
Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated, or if no time is stated, for a reasonable time (but in no event may such period exceed 3 months).
If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror.
Option Contract
An option is a distinct contract in which the offeree gives consideration, usually the payment of money, for a promise by the offeror not to revoke the outstanding offer. If an option is not supported by consideration, it is a freely revocable offer. (if no payment of money from or other legal detriment then no consideration)
**Even if consideration is not furnished, the offer can be accepted by the offeree unless the offer lapses or the offeree receives notice of revocation by the offeror.
The offer cannot be terminated before that time: even an offeree’s rejection will not extinguish an option.
EXCEPTION: offeree’s rejection will not extinguish an option, absent detrimental reliance on the part of the offeror
Mailbox Rule
Acceptance by mail or similar means creates a contract at the moment of dispatch.
Modifications
COMMON LAW MODIFICATION
-Traditional Common Law: No modification unless supported by mutual assent and new consideration bc had a preexisting legal duty
-party has to promise something new or different for new consideration
ex: promise to refrain from suing on a claim may constitute consideration
-New Common Law: Provides an exception for the preexisting legal duty rule. A promise modifying a duty under a contract not fully performed on either side is binding if the modification is 1) fair and equitable 2) in view of circumstances not anticipated by the parties when the contract was made.
-basically has to be impracticable
TEST TIP: if common law mod question & answer choices don’t have “fair and equitable” answer, fall back to traditional common law answer (preexisiting duty rule)
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UCC MODIFICATIONS
No consideration is required for a contract modifications made in good faith. BUT, must have a writing of the modification if 1) it falls within the Statute of Frauds or 2) the original contract states that modification must be in writing.
-Good faith → means honesty in fact and the observance of reasonable commercial standards of fair dealing.
Requirements K
In a requirements contract, a buyer promises to buy from a certain seller all of the goods the buyer requires, and the seller agrees to sell that amount to the buyer.
Although no specific quantity is mentioned in offers to make these contracts, the offers are sufficiently definite bc the quantity is capable of being made certain by reference to objective, extrinsic facts. Consideration also is present, as the promisor is suffering a legal detriment; it has parted with the legal right to buy goods from another source.
Unconscionability
Pertains to contracts or clauses in contracts that are one-sided or unfair as between the parties at the time the contract was formed.
For a K to be unconscionable, need both 1) lack of bargaining power (procedural unconscionability), and 2) unfair terms that unreasonably favor one side (substantive unconscionability)
Promissory Estoppel (detrimental reliance)
Use promissory estoppel when consideration fails
A promise is enforceable when it is made as part of a bargained-for exchange as part of a legal detriment when it is accompanied by an offer and acceptance.
Promissory Estoppel requires:
1) Promise, had to be in exchange for something that is not enforceable as consideration. Consideration fails.
2) Inducement of an act or forbearance to act (promisee will act in a certain way in response to promise)
3) Reliance on promise. Reliance has to be both a) reasonable and b) detrimental. Promisee must have actually relied on this promise when they took action. And Reliance has to be reasonable based on promisor’s representations (a reasonable person in same situation will also rely). And reliance must have cost them in some way, whether financially or emotionally, in some way that indicates detriment that needs to be compensated.
Statute of Frauds
Certain contracts have to be in writing to be enforceable, MY LEGS
-in Consideration of Marriage → a contract under which one party promises something of value to the other party on the condition they get married. Does not apply for contracts to marry, ONLY contracts in consideration of marriage.
-Years → contracts that cannot be completed within 1 year. 1 yr time period runs from the date the contract is made.
-Land → contracts for sale of land
EXCEPTION: Where an oral K for the sale of land has been partially performed. 1) If seller performs his side of K by conveying good title to Buyer, Seller can recover the purchase price from the buyer even though the K is oral bc of Partial performance.
2) As for Buyer’s performance, Buyer may seek to specifically enforce an oral land sale K under the doctrine of partial performance. Partial performance typically requires 2 of 3: payment (in whole or in part), possession, and/or valuable improvements
-Executory - certain promises made by executors or guarantors. Usually covers contracts that involve a promise by an executor to personally pay a debt that Belongs to the estate.
-Goods of $500 or more
EXCEPTION: Merchant’s
Confirmatory Memo
EXCEPTIONS: 1) if the buyer receives & accepts the goods, the k will become enforceable. If the buyer receives & accepts part of the goods the k will be enforceable as to the goods that were accepted & received.
2) If the buyer makes a partial payment for the goods contracted for, the contract is enforceable as to the goods for which payment is made.
3) if the contract requires the seller to specially manufacture goods for the buyer that are not suitable for sale to others & the seller makes a substantial beginning in the manufacture process, the contract will be enforceable.
-Surety → promises to answer for the debt of another. A promise made by a 3rd person to the creditor that the 3rd person will be responsible for the debt that the debtor owes the creditor must be in writing.
EXCEPTION: 1) If the 3rd person makes the promise to the debtor instead of to the creditor, the promise does not have to be in writing. 2) If the 3rd person promises to be primarily responsible for the debt, the promise is outside the statute 3) Even if the 3rd person makes the promise to the creditor and promises only to be responsible for the debt if the debtor defaults, an oral promise will be enforceable if the 3rd person’s main purpose for making the promise is for his own benefit.
Merchant’s Confirmatory Memo Rule
If within a reasonable time after entering into an oral agreement, one merchant sends a written confirmation of that oral agreement, it will bind that sending merchant immediately.
If the recipient merchant does not object to the contents of that writing, within 10 days of receipt, they are bound as well.
How to Enforce an Oral K?
Can only enforce an oral contract in equity so you can only sue for Specific Performance, not damages.
Unilateral Mistake
Unilateral Mistake
1) Mistake made by 1 party
2) That is unknown to the other party
3) Concerning a basic assumption
4) That has a material effect. To be material, the mistake must be about an issue that would impact whether the parties would agree to enter into the contract in the first instance.
Unilateral mistake is generally not a defense to formation. But if 1) One party knew or had a reason to believe the other party was mistaken 2) Mistake would make enforcement of the k unconscionable, then the contract is voided by the mistaken party.
-think sub-bidder scenarios
Mutual Mistake
Mutual Mistake-mistake made by both parties. Occurs when:
1) Both parties are mistaken as to a basic assumption on which the contract
2) Mistake is material to the K
3) Person asserting the mistake did not bear the risk of the mistake (could occur by agreement or by a party treating their limited knowledge as sufficient)
***If a written agreement fails to include a term of the agreement due to a mistake by both parties, the writing may be reformed to express the actual agreement.
If both parties are mutually mistaken about the terms of a K, & if that mutual mistake goes to the heart/essence of the agreement, it is grounds for recession. Put parties back into original places as if the K had not been entered into.
Mutual Mistake is NOT a defense when the party who is mistaken bore the risk of that mistake (ex: lady inherited a painting & appraiser told her to hire an art appraiser to determine value. lady just decided to sell it at a yard sale bc she thought it wasn’t worth anything. Ended up selling it to a neighbor. Neighbor didn’t know anything about art either. Both later find out it is $900k. Lady cannot rescind the k bc she bore the risk of any mistake as to the true value of the painting.
Shipment Contract
UCC presumes a K is a shipment K in the absence of a contrary agreement.
In a shipment K, the seller must ship the goods by carrier but is not required to tender them at a particular destination.
In a shipment K, the risk of loss generally passes to the buyer when the goods are delivered to the carrier.
EXCEPTION: If the buyer has a right to reject the goods, then the risk of loss does NOT pass to the buyer until the defects are cured or the buyer accepts the goods.
Also known as “FOB Seller’s Place of Business”
Perfect Tender Rule
The UCC requires perfect tender. If the goods or any tender fail in any respect to conform to the contract, the buyer may reject the goods.
The rule of perfect tender allows rejection for any defect, and does not require material breach. BUT, the buyer is required to give seller an opportunity to cure the defect by giving reasonable notice of an intention to cure and making a new tender of conforming goods within the time originally provided for performance.
Express Warranty
An express warranty will arise from any statement of fact or promise.
Ex: “This racket is made of titanium” → this is a statement of fact that will give rise to a warranty
Ex: “This racket will probably last for years.” → not a statement of fact, but a prediction of the future or puffery. Mere puffery will not give rise to a warranty
Implied Warranty of Merchantability
An implied warranty of merchantability will arise in every sale by a merchant unless disclaimed. To be merchantable, goods must be fit for ordinary purposes.
Implied Warranty of Fitness for a Particular Purpose
An implied warranty of fitness for a particular purpose arises only when: 1) a seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods, and
2) the buyer in fact relies on the seller’s skill or judgment
Express Condition
A express condition is an event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits, or extinguishes the absolute duty to perform in the other contracting party.
It is expressly included in the contract as a condition.
The non-occurrence of an express condition will discharge the contractual obligation of a party who is subject to the condition unless the non-occurrence of the condition has been waived by that party. In other words, the effect of non-occurrence of the condition will depend on whose obligation is subject to it.
The occurrence of a condition may be excused if the party having the benefit of the condition indicates by words or conduct that she will not insist upon it.
If a party indicates she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver.
The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position.
Damages for Waiver of Condition: Party can recover full contract price because the party waived the condition and is estopped from retracting the waiver.
Restitution Damages
Restitution Damages - awarded to prevent unjust enrichment. Is available when one party confers a benefit onto another party (even if there is no enforceable contract, it is an equitable remedy!)
-Restitution Damages = value of benefit conferred
-A party CANNOT recover both expectation and restitution damages
If Plaintiff is the party who breached the K, it may still recover in quasi-contract the value of the services performed minus any damages incurred as a result of the breach.
Reformation
Reformation - allows a contract to be changed to conform to the parties’ original intent
Reformation is available when:
1) A valid contract exists, but there was a misrepresentation or
2) Mutual mistake of a material fact (a unilateral mistake is sufficient if the non-mistaken party had reason to know of the mistake)
Reformation is NOT allowed if a valid equitable defense applies (ex: unclean hands)
Conversion
if you reject goods then sell them, that is wrongful against the original seller and constitutes conversion.
Remedy for conversion is the fair market value of goods at the time of conversion.
Reliance Damages
Reliance Damages - Expenditures made in reliance of a contract. Meant to put the nonbreaching party in the position it would have been if the contract never existed.
Court will issue reliance damages when expectation damages are too speculative.
Reliance damages are available when:
1) P acted in reliance on D’s agreement to perform under a K, and
2) P’s reliance was foreseeable
Liquidated Damages
Liquidates damages are damages stipulated to by the parties to a contract. Parties to a K may stipulate what damages are to be paid in the event of a breach.
A liquidated damages clause will be enforced if:
1) Damages amount is difficult to estimate at the time the K was formed, and
2) The amount is reasonable to the actual damages suffered.
If the liquidated damages clause is valid, then only that amount if valid.
if clause is invalid, then actual damages are available.
At common law, there is no numerical cap or percentage restriction on recoverable liquidated damages. Test involves an evaluation of reasonableness of the figure based on the facts in a given case.
Consequential Damages
Consequential damages consist of losses beyond those covered by the standard measure that a reasonable person would have foreseen would occur as a result of the breach.
These damages result from the nonbreaching party’s particular circumstances. Usually, consequential damages are loss profits resulting from the breach.
To recover consequential damages must be:
1) Reasonably foreseeable at the time of contract formation
2) Arise from P’s special circumstance that D knew of (or had reason to know of), and
3) Reasonably certain (not speculative)
Punitive Damages
Punitive Damages - meant to punish a wrongdoing party
Generally NOT available in contact actions.
Substantial Performance
In contracts not involving the sale of goods, the condition of complete performance may be excused if the party has rendered substantial performance.
The rules for determining whether performance is substantial are the same as those for determining whether a breach is minor or material. If the breach is minor, performance is substantial. If the breach is major, performance is not substantial.
To determine whether a breach is material, the courts look at:
1) amount of benefit received
2) adequacy of damages
3) extent of performance
4) hardship to the breaching party, and
5) whether the breach was negligent or willful.
If the party did not substantially perform, they cannot recover on the full contract. Other party is entitled to treat their incomplete performance as a total breach, relieving them of their duty of performance (to pay $$).
Anticipatory Repudiation
Anticipatory repudiation is the repudiation or breach of a contract in anticipation of contract becoming due.
Anticipatory repudiation occurs when a party unequivocally communicates that they are unable or unwilling to perform under the contract.
If not unequivocal? →
Where a party has reasonable grounds for being insecure about the other party’s performance, it may demand adequate assurances from the other party that it will perform in accordance with the contract. If a party does not give (1) adequate assurances of performance (2) within a reasonable time (not to exceed 30 days), the other party may treat that as an anticipatory repudiation. Demand for adequate assurances needs to be reasonable.
Once a party makes clear they are not going to perform, nonbreaching party has options:
1) Treat the K as repudiated & sue for damages before performance as due
2) Treat K as discharged & walk away
3) Wait until performance is due & then sue
4) Urge breaching party to perform
Retraction: A repudiating party may retract the repudiation and restore the contract unless the other party has a) canceled the contract, b) materially changed their position, or c) indicated that they considered the repudiation final.
-Anticipatory repudiation involves communications after K formation, it is tested alongside modification, waiver or estoppel.
-Essays testing anticipatory repudiation also usually ask about what damages could be recovered by the parties
Impossibility
Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform.
If the nonoccurence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event’s occurrence, duties under the contract may be discharged.
If there is impossibility, each party is excused from duties that are yet to be performed.
If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
Accord & Satisfaction
A contract may be discharged by an accord and satisfaction. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance. Satisfaction is the performance of the accord agreement.
An accord and satisfaction generally may be accomplished by tender and acceptance of a check marked “payment in full” where there is a bona fide dispute as to the amount owed.
An accord & satisfaction is NOT enforceable unless the debt is genuinely in dispute.
Assignment
Assignment = delegation of duties + assignment of contract rights. You assign rights & delegate duties.
Contract clause prohibiting the “assignment of the contract” = will be construed as barring ONLY the delegation of the assignor’s duties. Cannot delegate your duties, but can assign your right to payment to assignee, and assignee can collect $.
Generally, an assignee has whatever rights his assignor would have against the obligor. Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor.
Specific Performance (Sale of Goods)
Specific Performance - is only allowed if monetary damages are inadequate to compensate an injured party.
NOT awarded for personal service contracts, but injunctive relief may be awarded.
SP is an available remedy when:
1) A valid contract exists (with clear & definite terms)
2) Plaintiff has performed or is ready, willing, and able to perform
3) Legal remedies are inadequate (ex: rare/unique item, sale of land)
4) Enforcement is feasible for the court (not feasible for personal service contracts or where land/person is outside court’s jurisdiction)
5) No valid equitable or contractual defenses exist, and
6) Plaintiff can sufficiently/adequately assure performance
Nonconforming Goods
A buyer who receives nonconforming goods generally has the right to:
1) accept all
2) reject all, or
3) accept any commercial units and reject the rest.
To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection.
Damages: Builder Breaches During Construction K
Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion + compensation for any damages caused by the delay in completing the building.
nonbreaching party damages = cost of completion +
compensation for damages caused by delay in completing construction - work performed by builder
Most courts, however, will allow the builder to offset or recover for work performed to date to avoid unjust enrichment of the owner. This restitutionary recovery is usually based on the benefit received by the unjustly enriched party. If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant).
Intended Third Party Beneficiary
An intended third-party beneficiary can enforce a contract only after its rights have vested. (Therefore, a K cannot be modified or cancelled without the consent of the 3rd party beneficiary if their rights have vested.)
Vesting occurs when the beneficiary:
“vesting occurs when 3rd party goes to MAS”
MAS: Materially changes position, Assent, Suit
1) manifests assent to the promise in a manner invited or requested by the parties,
2) brings suit to enforce the promise, or
3) materially changes position in justifiable reliance on the promise & notifies the parties
4) If contracts terms state rights have vested
Promisor → Intended 3rd party beneficiary always has the right to seek enforcement of the contract bc the promsior is under an obligation to the beenficiary
Promisee → Intended 3rd party beneficiary never has rights concerning the enforcement of a promise performance against the promisee. Will only have rights against promisee if there was some type of prior obligation b/w promisee & 3rd party beneficiary
Third-Party Beneficiary Defenses
The third-party beneficiary is subject to any defenses that the promisor could have used against the original promisee.
Incidental Third-Party Beneficiaries
Incidental third-party beneficiaries are those who may benefit from the contract, but that is not the primary purpose of the contract. These incidental beneficiaries have NO contract rights. No rights to enforce the contract.
To determine whether a beneficiary is “intended” look at the following factors:
1) whether the beneficiary could have reasonably relied on the fact that a purpose of the contract was to confer a right to him
2) whether performance is supposed to run directly from a contracting party to the third party, rather than from the promisor to the promise and only indirectly benefitting the third party,
3) if part of the overall objective of the parties to the contract was to benefit the third party
Delegation
Unless the contract provides otherwise, a contractual duty may be delegated to another unless the other party to the contract has a substantial interest in having the original obligor perform.
Typically, the other party will have such an interest where the contract is a personal services contract involving fancy taste and judgment.
Unilateral Contract
A contract that involves one promise (by offeror) that expressly requires performance to accept. Contract is formed ONLY WHEN offeree completes performance.
When an offer invites acceptance by performance, the offeree’s beginning of performance creates an option contract that prevents the offeror from revoking its offer.
An offer to form a unilateral K is not accepted until performance is completed. However, the offeree is not obligated to complete performance merely bc he has begun performance, as only complete performance constitutes an acceptance of the offer.
Parol Evidence
Parol Evidence - A party cannot introduce a prior or contemporaneous agreement (written or oral) that contradicts a later contract.
EXCEPTIONS: Parole evidence can be introduced to…
1) To correct a cleric or typographical error
2) To establish a defense to formation (incapacity, duress, undue influence, mistake, illegal contract, contract contrary to public policy, unconscionability)
3) To interpret vague or ambiguous terms. Courts will interpret using the plain meaning rule, use the literal/ordinary meaning of terms. Only when this is not possible, courts will turn to extrinsic evidence.
4) To supplement a partially integrated writing, if it does not contradict the writing. Partially integrated writing is a writing that does not contain a complete statement of all terms. Fully integrated contracted, meaning it has all the terms the contract needs, then no parol evidence allowed.
-Indicators of partial integration → absence of merger clause, length & lack of formality of K
A merger/integration clause states that the contract contains a complete and entire agreement of the parties. A merger clause is evidence of total integration. Ex of Merger clause: “This agreement contains the complete and exclusive agreement b/w the parties and any prior representations are deemed to be merged herein.”
Remember, parol evidence does NOT bar the admission of subsequent agreements. Parties can always modify the contract!
Acceptance of Offer Under UCC
Acceptance of Nonconforming Goods
