Contracts Flashcards
UCC - Firm Offer
Contracts for the sale of goods are governed by the UCC. Under the UCC firm-offer rule, a merchant’s signed, written offer to buy or sell goods may contain assurances that it will remain open. If so, the offer is irrevocable for the time stated in the offer or, if no time is stated, for a reasonable time. The signed offer need not always contain a full, handwritten signature, such as when:
initialing the relevant clause is appropriate under the circumstances
or the merchant handwrites on his/her letterhead to confirm that a firm offer was made.
Accord Agreement
An existing contractual obligation can be discharged by an accord agreement. Under this agreement, a contracting party agrees to accept performance that differs from what was promised in an existing contract in satisfaction of the other party’s existing duty. When a claim is unliquidated or otherwise subject to dispute, it can be discharged by accord and satisfaction if:
the person against whom the claim is asserted tendered a negotiable instrument (e.g., a check)
the instrument was accompanied by a conspicuous statement indicating that it was tendered as full satisfaction of the claim (e.g., “payment in full”) and
the claimant obtained payment of the instrument.
FIRM SCAN
Ways to discharge contractual obligations
Full performance of contractual obligations
Impossibility, impracticability, or frustration of purpose
Release (in writing only)
Mutual rescission
Substituted contract
Contract or covenant not to sue
Accord & satisfaction
Novation
Third-Party Intended Beneficiary
A third-party beneficiary is a nonparty to a contract who receives an advantage or benefit from that contract. If the contracting parties intended for the contract to benefit the third party, the third party is an intended beneficiary with enforceable rights under the contract. Those rights vest when the beneficiary:
detrimentally relies on the rights created
manifests assent to the contract at one party’s request or
files a lawsuit to enforce the contract.
Once this occurs, the original contracting parties are bound to perform the contract. Any efforts to rescind or modify the contract after vesting are void unless the third party consents to the rescission or modification.
Novation
Obligations under a contract can generally be delegated to another.* However, the person delegating his/her duties (the delegator) is not released from liability unless there is a novation. A novation is the substitution of a new contract for an old one when a party to the original contract agrees to release the other party (the delegator) and substitute a new party (the delegatee). A novation can be express or it can be implied after delegation if:
the delegator repudiates liability to the other party to the original contract and
that party accepts performance from the delegatee without reserving rights against the delegator.
Anticipatory Repudiation
The doctrine of anticipatory repudiation generally applies when a contracting party clearly and unequivocally indicates an unwillingness to perform a promise before the time for performance is due. Upon repudiation, the nonrepudiating party may:
treat the repudiation as a breach of the contract or
ignore the repudiation and demand performance.
However, this doctrine does not apply when the date of performance has not passed and the nonrepudiating party has fully performed. Under those circumstances, the nonrepudiating party must wait until the repudiating party’s performance is due before filing suit.
Parol Evidence Rule
The parol evidence rule generally bars evidence of prior or contemporaneous agreements that contradict the terms of an integrated writing—i.e., a writing that presents the final expression of the parties’ agreement. A writing may be fully or partially integrated. However, the UCC presumes that a contract for the sale of goods (e.g., jewelry) is only partially integrated.* As a result, evidence that supplements a written contract is admissible—but evidence that contradicts the writing is inadmissible.
Assignment
An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is a gratuitous assignment and is generally revocable (exceptions listed in the table above). A revocable assignment is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.
UCC “Fill the Gaps”
The UCC “fills the gaps” for many missing terms in a contract for the sale of goods. If the contract omits a price term or if the parties agree to set the price in the future but fail to do so, then the UCC supplies a reasonable price at the time of delivery.
Accord v. Substitute Contract
Parties to a contract may agree to change one or both parties’ performance through an accord agreement or a substitute contract:
Accord agreement – when a party agrees to accept different performance in satisfaction of (i.e., in place of) the original promise; after breach, the party can sue under either the original contract or the accord agreement.
Substitute contract – when the parties form a second agreement that immediately discharges the original contract; after breach, a party can sue under the substitute contract only.
Whether the parties formed an accord agreement or a substitute contract is a fact issue that depends on the formality of the agreement. The more formal the agreement (e.g., words discharging original duties, consideration on both sides), the more likely the fact finder will determine that the parties intended to create a substitute contract.
Anticipatory Repudiation - Retracted
The doctrine of anticipatory repudiation applies when a contracting party clearly and unequivocally repudiates (i.e., indicates an unwillingness to perform) a promise before performance is due. A repudiation can be retracted if the nonrepudiating party receives notice of the retraction before:
canceling the contract
materially changing position in reliance on the repudiation or
indicating that he/she considers the repudiation to be final.
If the repudiation is not retracted, then the nonrepudiating party may (1) treat the repudiation as a breach or (2) ignore it and demand performance pursuant to the contract.
Consequential Damages
The primary goal of contract damages is to put the nonbreaching party in the same position as if the contract had been performed. This is typically done by compensating the nonbreaching party for actual economic losses. Such losses include consequential damages, which arise from special circumstances unique to the contracting parties rather than directly from the transaction itself. To be recoverable, consequential damages must have been reasonably foreseeable to the breaching party when the contract was entered.
Firm Offer - Acceptance
Under the mailbox rule, an acceptance that is mailed within the allotted response time is effective when sent unless the offer provides otherwise. However, this rule does not apply to firm offers, options, or other irrevocable offers. Under the UCC, a merchant’s offer to sell goods is firm (i.e., irrevocable) if it is made in a signed writing that assures that the offer will remain open. Acceptance of a firm or otherwise irrevocable offer is effective only if it is received by the offeror before the offer expires.
Condition Precedent Waiver
A contracting party may generally avoid performance if a condition precedent—i.e., an uncertain future event that must occur before performance becomes due—has not occurred. The nonoccurrence of a condition may be excused, however, if the party who would benefit from the condition waives it by words or conduct. And the waiving party cannot retract the waiver once the other party has detrimentally relied on it.
Nonconforming Goods - Rejection
Under the UCC’s perfect-tender rule, a seller must deliver goods that conform perfectly to the contract. A buyer can therefore reject nonconforming goods within a reasonable time after delivery by promptly notifying the seller of the rejection.
After rejection, the buyer has an obligation to take reasonable care of any goods in its possession until the seller has had a reasonable amount of time to retrieve them. When the seller does not retrieve the goods or provide further instructions, the buyer may generally choose to store, reship, or sell the goods on the seller’s behalf. However, the buyer is required to sell the goods on the seller’s account if:
the buyer is a merchant—i.e., one who regularly deals in goods of the kind involved or who, by occupation, holds him/herself out as having knowledge or skills unique to the goods involved*
the goods involved are perishable or threaten to speedily decline in value and
the seller has no local agent to whom the goods can be returned.
Quasi-Contract
A “quasi in rem” remedy is effective against a defendant in reference to property, while an “in personam” remedy is effective against a defendant directly. In personam remedies are available for most causes of action, including quasi-contract. A plaintiff can recover in quasi-contract—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous and measurable benefit on the defendant that resulted in unjust enrichment because:
the defendant had the opportunity to decline the benefit but knowingly accepted it or
the plaintiff had a reasonable excuse for not giving the defendant an opportunity to decline.
Parol Evidence Rule - Condition Precedent
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. However, evidence may be admitted to prove a condition precedent to the existence of the contract. A condition precedent is a condition that must occur to trigger a party’s obligation to perform.
UCC Parol Evidence Rule
Under the UCC parol evidence rule, which applies to contracts for the sale of goods (e.g., T-shirts), evidence of prior or contemporaneous agreements cannot be used to contradict the terms of a final written agreement. However, a course of performance can be used to explain or supplement those terms. A course of performance is a sequence of conduct that is relevant to understanding an agreement between the parties if:
the agreement involved repeated occasions for performance by a party and
the other party accepted performance without objection and with knowledge of the course of performance.
Contract Not Specifying Assortment of Goods
When a contract for the sale of assorted goods does not specify who will choose the assortment, the UCC imposes a duty on the buyer to make that selection. If the buyer fails to specify the assortment of goods, then the seller can treat that failure as a breach—but only if the buyer’s failure to specify the assortment materially impacts the seller’s performance.
New Promise to Pay Debt
A contract must generally be supported by consideration to be enforceable. However, there are circumstances in which a promise is enforceable without consideration. For example, a new promise to pay a debt after the statute of limitations has run is enforceable without any new consideration. When the new promise is an express promise, most jurisdictions require that the new promise be in writing and signed by the debtor to be enforceable.
Illegal Contract
A contract to perform an illegal act (e.g., fraud) is void and unenforceable. However, restitution damages may be recoverable if the claimant conferred a benefit on the other party and:
was justifiably ignorant of the facts that made the contract illegal*
was less culpable than the other party (i.e., was not in pari delicto) or
withdrew before the contract’s illegal purpose was achieved and did not engage in serious misconduct (e.g., shockingly immoral, unethical, or unjust behavior).
Suretyship
Suretyship is a three-party contract in which a surety promises to be secondarily responsible to a creditor (the obligee) for another’s (the principal’s) debt or other obligation if that person fails to perform. A suretyship falls within the statute of frauds and therefore must generally be in writing and signed by the party against whom enforcement is sought. However, a suretyship is excepted from the statute of frauds if it was made mainly for the surety’s economic advantage or to indemnify (i.e., reimburse) the creditor for monetary loss.
Assignment
An assignment is the transfer of rights under a contract. An assignment is valid so long as there is a present intent to transfer contractual rights. It need not be accompanied by consideration. But when an assignment is made without consideration (i.e., a gratuitous assignment), it is revocable by the assignor (i.e., the party assigning rights to another) unless:
the obligor (i.e., the party obligated to perform) has already performed—i.e., the assignee obtained the payment or other performance under the contract from the obligor
a document symbolizing the assigned right has been delivered to the assignee
a written assignment signed by the assignor has been delivered to the assignee or
the assignee (i.e., the party receiving assigned rights) has detrimentally relied on the assignment.
Expectation Damages - Construction
Expectation damages are intended to put the non-breaching party in the same position as if the contract had been performed. Expectation damages must be calculated with reasonable certainty. In construction contracts, the general measure of damages for a contractor’s failure to begin or to complete a building project is the difference between the contract price and the cost of construction by another builder, plus any progress payments made to the breaching builder and compensation for the delay in completing the construction.
