Contracts Flashcards

Question

Incapacity

Answer 1

Infancy (under 18) or mental incompetence at the time of K. Such incapacitated party may enter into a K and enforce it, and the K is voidable only by that party i. Ratification: Once a minor turns 18, may expressly/impliedly ratify and be bound to K ii. EXCEPTION: Can recover reasonable value for necessaries (food, clothing, shelter)

Answer 2

K becomes voidable by innocent pt i. Fraudulent misrepresentation (fraud in the inducement): Inducing another pt to enter into K by asserting (or conduct such that other pt infers) untrue information. K voidable if justifiably relied on misrepresentation ii. Nonfraudulent misrepresentation: K voidable if innocent pt justifiably relied on material misrepresentation 1. Materiality: objectively likely to induce a reasonable person to agree with asserted information or subjectively the maker of assertion had reason to know it was likely to cause someone to agree

Answer 3

Nondisclosure of material facts + duty to disclose (e.g., fiduciary relationship, assertion later made untrue, obligation of good faith) + reasonable reliance on nondisclosure. K becomes voidable

Answer 4

1) Unfair persuasion, 2) against a vulnerable party (aged, ill). K becomes voidable

Answer 5

The test is whether in light of the general commercial background and needs of the particular parties, K is so one sided as to be unconscionable under the circumstances at time of formation. Result: Court may refuse to enforce K, enforce remainder of K w/o unconscionable parts, limit clauses to avoid unconscionable result

Answer 6

K void if subject matter is illegal or crime (bribery, prostitution, murder) or performance itself is a tort

Answer 7

An oral K is valid in many instances. However, for certain agreements to be enforceable, they must be evidenced by a writing signed by the party sought to be bound

Answer 8

i. Marriage K ii. Year bar: K that cannot be performed w/in 1 year of agreement must be in writing iii. Land-sale K. EXCEPTION: part performance – improvements, payments, evidence of K in existence iv. Executor promise: A promise by an executor or administrator to pay estate’s debts out of own funds v. Guaranty K: A promise to guarantee (not assume) the obligation or debt of another person. EXCEPTION: 1. Main purpose rule: If guarantor’s main purpose in promising is for his own economic advantage (e.g., as shareholder), writing not required. Oral promise to guarantee such a loan is enforceable vi. Sale of goods for $500+. EXCEPTIONS: 1. Merchant confirmation: If a merchant sends written confirmation after oral agreement w/in reas. time, binds recipient if reason to know of contents and no written objection w/in 10 days of receipt 2. Enforceable to extent of quantity of goods shown in writing or paid for (including partial payment)

Answer 9

One or more signed writings that reflect material terms signed by party to be charged (sued, i.e., Δ or its authorized agent). Signature may be typed, initialed, on a letterhead, or electronic.

Answer 10

Writing includes nature and subject matter of K, essential terms of agreement 1. Several writings: Entire set of writings may be combined into one sufficient to satisfy SOF if 1) signed writing is attached to other writing by party to be charged, 2) signed writing refers to the unsigned writings, or 3) signed and unsigned docs clearly refer to the same subject matter.

Answer 11

Requires quantity of goods. Enforceable up to stated quantity. EXCEPTIONS: Writing signed by charged party not required for sale of goods if SWAP: 1. Specially manufactured goods: Goods manufactured to buyer’s specs, substantial reliance by seller 2. Written confirmation by merchant (merchant’s confirmation): Between merchants, signed written confirmation of an oral agreement sent w/in reasonable time will also bind recipient, if recipient has reason to know of confirmation’s contents (quantity) + does not object in writing w/in 10 days + actually received by the party to be charged 3. Admission in court up to quantity admitted 4. Partial performance, e.g., payment made & accepted, goods received & accepted

Answer 12

Reliance on a promise of creating signed writing. Quasi-contract: Recovery of value for benefits conferred where there is unjust enrichment

Answer 13

When parties to a contract have put in writing the final and complete expression of their agreement (“completely integrated”), evidence of any other prior or contemporaneous oral or written agreements (negotiations) are not admissible to vary or contradict (OK to explain) the terms of the writing.

Answer 14

when it is a final expression of the agreement but not a complete expression of the agreement (only reflects a part of the agreement, e.g., missing terms). Evidence may only be used to supplement (not contradict) partially integrated writing with consistent additional terms

Answer 15

1. Under one view, if within the plain meaning of the four corners of the contract it appears intended to be the final and complete expression of their agreement. A merger clause 2. Under another view, the existence of extrinsic evidence of an additional term (like an oral statement) shows that the original agreement was not meant to be an integrated contract

Answer 16

1. Oral condition precedent: Oral agreement that K would not be effective until a condition occurs 2. Subsequent agreements or modifications (PER only applies to prior/contemporaneous expressions) 3. Collateral agreements (distinct from completely integrated written agreement) 4. Attack validity of written agreement (show it did not become proper K): ambiguous terms, no consideration, mistake, duress, fraud, reformation to correct mistake

Answer 17

1. Under CL—Price: reasonable value. Duration: employment at will, given assurance of job security 2. Under UCC—Price: reasonable price as of delivery. Time of delivery: reasonable time. Time of payment: time and place of receipt by buyer. Place of delivery: seller’s place of business. Quantity: Definite, certain term required (§ II-a-ii). But see § V-a-v-3 below

Answer 18

(for merchants, goods are fit for ordinary purposes, unless displaced by “as is” language), fitness for a particular purpose buyer intends to use them for (seller has good reason to know the purpose + buyer relies on seller’s skill/judgment) a. Any disclaimer must be in conspicuous writing so that a reasonable person can notice it

Answer 19

created by seller’s affirmation/promise, description of good

Answer 20

typically fatal to a K. EXCEPTIONS under UCC: a. Output K: Buyer agrees to purchase all of a supplier’s output b. Requirements K: Supplier agrees to supply all of the goods required by buyer i. Quantity demanded may not be unreasonably disproportionate (higher/lower) to a stated estimate or comparable prior numbers ii. Actual “requirement” may be zero (e.g., if company out of business)

Answer 21

where one party pays only if satisfied may be considered illusory, but UCC requires “best efforts” or “good faith effort” by both parties

Answer 22

If delivery by common carrier other than seller (e.g., FedEx), (states “FOB [free on board] seller”) where risk of loss (ROL) passes to buyer when goods are delivered to carrier If K does not specify FOB term or allocate ROL, it is a shipment K

Answer 23

where ROL is on buyer upon delivery If delivery by non-carrier (seller must deliver), it is a destination K by nature If seller is a merchant, ROL passes to buyer when in buyer’s possession (if buyer never takes possession, seller still has ROL). If non-merchant, ROL is on buyer upon delivery

Answer 24

used to fill in gaps or interpret ambiguous language. Such evidence can trump in conflict: 1. Course of performance (regular performances within K) can establish waiver/modification of express terms > express terms in K > course of dealing (pattern of previous transactions between pts) > trade usage (regular industry practice)

Answer 25

K if it explicitly so states. By default, time is not of the essence

Answer 26

A “condition” is the occurrence or nonoccurrence of an event that triggers, limits, or extinguishes an absolute duty to perform (“provided”/“if”). K may provide that a party does not have a duty to perform unless some condition is fulfilled. The party’s failure to perform is justified if that condition was not fulfilled i. There is an absolute duty to perform if there is no condition, or condition has been excused or satisfied

Answer 27

Conditions may be constructively implied, where the duty of each party to render performance is conditioned on the other party doing so. If so, what’s the sequence of performance? 1. If simultaneous performance is possible, each pt must tender, to put other under duty to perform 2. If one performance will take longer, its completion is due first as constructive condition precedent

Answer 28

Agreement or commitment to do or not do something. May be conditional or unconditional 1. Failure of a promise is a breach and gives rise to liability. Failure of a condition is not a breach and relieves a party of the obligation to perform

Answer 29

Where an obligation is subject to a condition, and the condition hasn’t been satisfied, the obligation can still become an absolute duty to perform if the condition is excused (i.e., an absolute duty to perform the obligation arises without the condition occurring)

Answer 30

Occurs on failure of duty to perform Actual/present breach: When one of the parties fails to perform, a breach of contract occurs 1. Material breach: Breach is material if the obligee does not receive the substantial benefit of the bargain. Nonbreaching pt is discharged from duty and has a right to remedies a. Failure to perform by stated time is not material if done w/in reasonable time. If timely performance essential to K, or K expressly provides time is of essence, failure is material 2. Minor breach: Breach is minor if obligee receives the substantial benefit of the bargain despite obligor’s defective performance. Nonbreaching pt still has duty to perform but may seek damages

Answer 31

Unequivocal (not merely prospective inability to perform, manifested by doubt) statement/conduct indicating pt will commit a breach (before deadline) can be treated as immediate breach 1. Failure to provide reasonable assurances w/in reasonable time (30 days) is treated as a repudiation 2. Retraction: Repudiating party may retract repudiation, UNLESS other party acts in reliance under repudiation, accepts repudiation (signals it to repudiating party), or brings suit 3. Effects: If repudiated, aggrieved pt may sue immediately, wait, discharge K, or urge pt to perform a. If repudiation cannot be established, but there are reasonable grounds for insecurity, the insecure party may demand adequate assurance of performance

Answer 32

Request for modification (after K) must be supported by new consideration (CL) or good faith (UCC)

Answer 33

if one already owes a duty to perform, that performance cannot be used as consideration for another promise. EXCEPTIONS: 1. Duty owed to 3P: Modernly, a duty is preexisting only if it is owed directly to a promisee. Promise to perform a duty is valid consideration as long as the duty is not already owed to the promisee 2. Unforeseen burdens: Promise of increased compensation is given in exchange for a promised performance substantially more burdensome than reasonably anticipated at formation 3. Mutual modification: Parties agree to a different performance that is not a mere pretense

Answer 34

Only good faith (usually there) needed to modify. Mod must be in writing if regarding sale > $500

Answer 35

All parties expressly agree to release and substitute a party. No writing required

Answer 36

Terms for sale of goods are enforced exactly. If goods or delivery fail to conform to K in any way, buyer may 1) reject goods within reasonable time of delivery, 2) accept goods, or 3) accept some units i. Buyer’s right to reject is cut off by acceptance or failure to reject w/in reasonable time ii. Seller has right to cure: Seller may cure any defects and make conforming delivery after seasonable notice iii. Buyer has right to revoke acceptance w/in reasonable time if acceptance relied on 1) assurance that defect would be cured, 2) difficulty of discovering defect, 3) or seller’s assurance that goods conformed to K

Answer 37

Discharge of duties in unforeseen events: i. Impossibility 1. Temporary impossibility merely suspends performance ii. Impracticability Frustration of purpose b. Mistake i. Unilateral mistake ii. Mutual mistake c. Excuses by agreement i. Rescission ii. Accord & satisfaction

Answer 38

Objective impossibility (i.e., no one would be able to perform) for the promisor to perform excuses pts from performance, e.g., illegality, death of necessary person, destruction of subject matter 1. Temporary impossibility merely suspends performance

Answer 39

A severe burden, cost, or risk to the promisor excuses performance. Examples: shortages caused by war, local crop failure, unforeseen disasters. NOT if assuming risk of market fluctuations, great increase in expense of performance, event that makes performance impracticable is fault of pt seeking relief UCC commercial impracticability: A seller’s absolute duty to deliver goods is discharged if “performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made.” Promisor must allocate production and deliveries among its customers in a manner that is fair and reasonable

Answer 40

A contingency occurs that dramatically/totally reduces the value of performance to the receiving party, and principal purpose in entering the K is substantially/totally frustrated

Answer 41

Requires materiality—mistaken facts must significantly impact transaction, e.g., rarity or nature of item i. Unilateral mistake: One pt mistaken about material facts is NOT excused (NOT voidable), UNLESS other pt knew or had reason to know of mistake (failure to act in GF) or serious clerical error by mistaken pt ii. Mutual mistake: Voidable by disadvantaged party who did not bear the risk of mistake

Answer 42

Consideration is provided mid-performance by each party to discharge the other’s duties

Answer 43

New agreement (accord suspends duty; cf. modification alters) where obligee promises to accept substituted performance in satisfaction of obligor’s original, existing duty

Answer 44

(whether 3P beneficiary has standing to enforce the K) a. A (promisee) contracts with B (promisor) such that B must perform for C (3P beneficiary) Who can sue? Intended beneficiaries, not incidental beneficiaries. 3P must 1) receive performance directly from promisor, 2) be expressly designated in the K, or 3) have a relationship with the promisee implying intent to benefit c. When does right to sue vest? When 3PB 1) brings suit to enforce, 2) changes position in reliance on K, 3) manifests assent to K at request of promisee or promisor, or 4) expressly vested under K

Answer 45

X (obligor) contracts with Y (assignor); Y assigns right to X’s performance to Z (assignee). Pts may only assign rights that they could enforce themselves. Assignee steps into assignor’s shoes personal service, requirements K, public-policy violation, anti-assignment (AA) clauses AA clause only prevents transfer of duties but not right to performance: Assignor may be liable for breach, but assignee may enforce (obligor must still perform for assignee) Establishes privity of K b/w obligor and assignee. Removes original privity b/w obligor and assignor Assignee may sue obligor (under assignor’s rights) and assignor (implied warranties: Assignor will do nothing to impair value of assignment; assignor has actual right to assign)

Answer 46

Y (obligor/delegator) promises to perform for X (obligee); Y delegates its duty to Z (delegatee). 3P agrees to satisfy a performance obligation owed by one of the parties to a K personal service, requirements K, prohibited by K (fully enforceable unlike AA clauses) Obligee must accept performance from delegatee of all duties that may be delegated Delegator may still be sued by obligee absent novation (expressly releasing delegator). Delegatees who receive consideration from delegator (not gratuitous) may be sued by delegator or obligee.

Answer 47

Expectation damages put the non-breaching party where it would have been had the promise been performed. Expectation damages must be reasonably foreseeable at K formation ii. Reliance damages: If expectation dmgs too speculative, cost of performance made in reliance of K iii. Consequential damages: Losses resulting from breach that a reasonable person would have foreseen iv. Incidental damages (K for sale of goods): Expenses reasonably incurred incident to breach

Answer 48

K price – resale price (exercise good faith) or FMV (if not resold) Lost volume sellers assumed to have as many items as he can sell (effectively unlimited) a. Damages = lost volume profits (profit on the lost sale) + any incidental damages

Answer 49

K price – cover price (exercise good faith) or FMV (if not covered) 1. Merchant buyer’s duties as to rightfully rejected goods that are perishable or quickly devaluing: Make reasonable efforts to sell for seller, and be reimbursed up to 10% gross proceeds

Answer 50

Parties may include terms providing for custom damages a. Enforceable only to compensate for breach: 1) Pts intended it to be LD clause rather than penalty, 2) LD clause was reasonable estimate of damages in re anticipated harm b. Clause unenforceable and stricken from K if designed as penalty to punish a breach 2. Provisions limiting damages OK unless unconscionable (personal injury from consumer goods)