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Contracts Flashcards

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1
Q

What is a contract?

A

A legally enforceable agreement with bargained-for consideration

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2
Q

What does Article 2 of the UCC govern?

A

Contracts involving the sale of goods.

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3
Q

What does common law govern?

A

Contracts about real estate and services.

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4
Q

What happens if a contract involves both the sell of goods and services?

A

Rule 1: All or nothing, mixed contracts must fall into one univers or another. UNLESS they are divisible contracts - divided intot wo mini-contracts.
Rule 2: The predominant purpose rule – whichever plays a bigger role governs.

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5
Q

What is the memory trick for contract formation?

A

All Contracts Don’t Stink
Agreement
Consideration
Defenses to formation
Statute of Frauds (enforceability)

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6
Q

What is an offer?

A

A manifestation of a willingness to enter into an agreement (by the offeror) that creates a power of acceptance (in the offeree).

To be valid, the offer has to convey the power of acceptance to the otehr side. (Can they just say “I Accept” and the deal is done?)

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7
Q

What test governs determining if an offer or acceptance was made?

A

The objective test - outward appearance of words and actions matter. KEY ISSUE is whether oferror displays an objectively serious intent to be bound.

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8
Q

Under common law, how specific must an offer be?

A

All essential terms must be covered in the agreement - parties, subject, price quantity.

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9
Q

Under the UCC, how specific muts an offer be?

A

Only essential term is quantity. UCC can fill in th the other gaps, including price.

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10
Q

What is a requirement contract?

A

The buyer is offering to buy 100% of whatever they need from teh seller. This is considered specific enough under the UCC even though there isn’t a specific quantity.

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11
Q

What is an output contract?

A

The seller is offering to sell 100% of whatever they produce to the buyer. This is considered specific enough under the UCC even though there isn’t a specific quantity.

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12
Q

How can offer be terminated?

A

Six common fact patterns on the MBE
1. Express Revocation - The offeror revokes by express communication to the offeree
2. Constructive Revocation - The offeror learns that the offeror has taken an action that is absolutely inconsistent with a continuing ability to contract.
3. The offeree rejets the offer
4. The offeree makes a counteroffer
5. The offeror dies.
6. A reasonable amount of time passes

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13
Q

When can the offeror revoke an offer?

A

Anytime before acceptance. UNLESS it is an irrevocable offer.

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14
Q

How do “irrevocable offers” arise?

A
  1. Optoin Contract - pay money to keep offer open for so long
  2. Firm Offer
  3. Unilateral Contract where Offeree has Started perofrmance
  4. Detrimental Reliance - offeree reasonably and detrimentally relies on the offer for some unforseeable manner
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15
Q

When is a Firm Offer created, making it irrevocable?

A

When a merchant makes makes an offer to buy or sale goods. (For this rule, a merchant is any business person, whent he transaction is commercial in natuer).
Firm offer must be written, signed by the offeror, and contain an explicit promise not to revoke.
Time period - either: (i) as long as stated in the offer, or (ii) for a reasonable time period not to exceed 90 days

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16
Q

What is an acceptance?

A

A manifestation of a willingness to enter into the agreement by the offeree.

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17
Q

What is the mailbox rule?

A

Acceptance sent by mail is effective whent he letter is mailed.

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18
Q

When does the mailbox rule not apply?

A
  1. The offeree sends something else back first (i.e. rejection, counteroffer)
  2. Doesn’t apply to other types of communications (revocations, rejectsion)
  3. To option contracts
  4. Uncear whether it applies to media (e.g. fax, email)
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19
Q

When can offer be accepted without communication (by silence)?

A
  1. Unilateral reward offers or contests
  2. Unilateral offer in which the parties are geographically closer (such that offeror will see that performance has occurred)
  3. A past history of silence serving as acceptance (such that the offeree should reasonably notify the offeror if she does not accept).
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20
Q

When is an acceptance a counteroffer under common law?

A

Uses mirror image rule. Terms of the acceptance must match the terms of the offer exactly - or it is not an acceptance but a counteroffer.

Conditional acceptance (“if” “only if” “but”) is ALSO a counteroffer.

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21
Q

What happens under the UCC when an acceptance does not match the terms of the offer?

A

More forgiving. Apply UCC 207.

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22
Q

When will an additional (new) term in the acceptance control in the UCC contract?

A
  1. both parties are merchants
  2. the new term does not materially alter the deal
  3. The initial offer did not expressly limit acceptance to its terms; and
  4. The offeror does not object within a reasonable time tot he new term.
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23
Q

What happens under the UCC when the acceptance has a different term than the offer?

A

Knock-Out Rule
1. Minority - when different terms do not govern, initial offer controls the terms.
2. Majority - knock out both terms, fill in with UCC gap

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24
Q

What happens under the UCC when a party sends a confirming memo as an acceptance but the memo has additional terms not agreed on?

A

The memo operates as an acceptance, even though it states terms additional to or different from the contract, unless acceptance is made conditional only upon assent to the additional or different terms.

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25
What is bargained-for consideration?
A deal in which the parties exchange promises involving a legal detriment or benefit. A gift is NOT consideration.
26
How can you modify a contract under the common law?
Follows Preexisting Duty Rule - a promise to do somehting that you are already legally obligated to do is not consideration. You need new consideration.
27
What are the exceptions to the common law's preexisting duty rule for contract modfifiation?
1. A change in performance 2. A third party promising to pay; or 3. Unforeseen difficulties that would excuse performance.
28
When can you promise partial payment for the release of a debt obligation under common law?
When the debt is not yet currently due and is undisputed.
29
How can you modify a contract under the UCC?
If a modification is made in good faith it is binding, even without any new consideration.
30
What are consideration substitutes?
1. Promisory Estoppel - one party makes a promise and hte other party relies on that promise to take some action. 2. Quasi-Contract - when you would have made a K if you could have, but you couldn't OR one party conferred a benefit and it would be fair to pay for that benefit 3. Moral obligation + subsequent promise.
31
What are the elements for promisory estoppel
1. A promise is made that would be reasonably expected to induce reliance 2. The promisee does indeed take detrimental action in reliance on the promise; and 3. Injustice can only be avoided by eneforcement of the promise
32
What are the elements for quasi-contract?
1. The plaintiff confers a benefit on the defendant; 2. The plaintiff reasonably expected to get paid; and 3. It would be unfair to let the defendant keep the benefit without paying. NOTE: quasi-K damages are often limited, as justice requires, to the fair value of the benefit conferred.
33
What are the defenses to contract formation?
1. Misunderstanding 2. Incapacity 3. Mistake 4. Fraud/Misrepresentation/Nondisclosure 5. Duress 6. Illegality 7. Unconscionability
34
What are the elements of misunderstanding?
1. The parties use a material term that is open to two or more reasonable interpretations (objective test cannot apply); 2. Each side attaches a different meaning to the term; and 3. Neither party knows, or should know of the confusion.
35
Who lacks capacity to make a contract?
1. minors 2. mentally ill individuals - the person cannot understand the nature and consequenes of his actions; or - the person cannot act in a reasonable manner in relation to the transaction (if the other side knows or has reason to know this) 3. Very intoxicated persons (if the other side has reasont o know this) MAKES CONTRACT VOIDABLE -- incapacitated party can disaffirm EXCEPTION - contracts for necessity -- party without capacity must still pay fair value
36
What are the elements for a mutual mistake?
The adversely affected party can rescind IF 1. There is a mistake of fact, existing at the time the deal is made; 2. The mistake relates to a basic assumption of the contract and has a material impact on the deal; and 3. The impacted party did not bear the risk of mistake
37
What are the elements for unilateral mistake?
Allows the adversely affected party to rescind if 1. There is a mistake of fact, existing at the time the deal is made; 2. The mistake relates to a basic assumption of the contract and has a material impact on the deal; and 3. The impacted party did not bear the risk of mistake; and 4. Either: (i) the mistake would make the contract unconscionable; or (ii) the other side knew or, had reason to know of, or caused the mistake.
38
What are the elements of misrepresentation?
To assert this defense, the party must show: 1. A misrepresentation of present fact (not opinion) 2. That is material OR fraudulent (intentional); and 3. That is made under circumstances in which it is justifiable to rely on the misrepresentation.
39
What are the two types of duress?
1. Undue Duress - arises when one party makes threats ot induce another party to contract (or modify a contract) 2. Undue Influence - arises when a party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics
40
When will an illegal contract be enforced?
If it is entered in furtherance of an illegal act (this is not itself illegal). Typically, the law will just leave the parties where they stand. There is a modern trend toward allowing less-guilty parties to recover restitution (i.e. get their money back)
41
What are the two varities of unconscionability?
1. procedural unconscionability - a defect in the bargaining process itself, usually a hidden term or absence of meaningful choice (no other contracting option) 2. substantive unconscionability - a rip-off in some term of the contract
42
What contracts fall under the statute of frauds?
M. Sour 1. Marriage - a contract made in consdieration of marriage (like a prenup) 2. Suretyship - a contract promising to guarantee the debt of another 3. One Year - a contract that by its terms cannot be performed within one year of its making 4. UCC - contract for goods of $500 or mroe 5. Real Property - a contract for the sale of an interest in real property
43
When does a suretyship contract not fall under the statute of frauds?
When the main purpose of agreeing to pay the debt of another is for the surety's own economic advantage.
44
How is the statute of frauds satisfied for service contracts that cannot be performed within one year?
1. Full performance of a services contract by either side --- NOT partial performance. 2. A writing signed by the party against whom the contract is asserted?
45
What is required for a signed writing to satisfy the statute of frauds?
1. Must be signed by the party against whom the contract is asserted/ 1. Must cover the fundamental facts: (i) show that a contract has to have been made; (ii) identify the parties; and (iii) coontain the essential elements of the deal.
46
How is the statute of frauds satisfied for real estate contracts?
1. signed writing 2. partial performance if ANY OF THE TWO of the following three elemnts are met: (i) possession; (ii) payment; (iii) improvements to the land
47
How is the statute of frauds satisfied for UCC contracts?
1. signed writing cover the fundamental facts: (i) show that a contract has to have been made; (ii) identify the parties; and (iii) contain quantity of goods 2. part performance - BUT only for the quantity delivered and accepted 3. A judicial admission 4. A confirming memo - failure to object within 10 days will satisfy SOF if both parties are merchants
48
Are custom-made goods subject to the statute of frauds?
No. The maker can satisfy the SOF as soon as it makes a substantial begining toward the manufacturing of the goods
49
When does a modification to a contract need to satisfy the SOF
When the deal, with the alleged modification, would be in the SOF world.
50
When does the Parol Evidence Rule not apply to bar earlier evidence?
1. evidence relevant to a defense against contract formation 2. evidence of a second separate deal 3. evidence of a prior communication that is designed to interpret an ambiguous term in the final agreement.
51
What is the Parol Evidence Rule in common law?
If the parties have reduced their contract to a comprehensive witing, then earlier statements or writings related to this agreement are not part of the deal under PER. LOOK FOR A MERGER CLAUSE
52
What is the PER in UCC?
More forgiving, presumes that writing is, at most, a partial integration -- UNLESS the parties would have certainly included a disputed term in the writing.
53
What is the warranty of merchantability?
Triggered when the seller is a merchant dealing in the goods at issue. Warrants that the goods are fit for ordinary commercial purposes.
54
How do you disclaim the warranty of merchantability?
1. VERY CLEAR AND CONSPICUOUS language; and 2. The term "merchantability"
55
What is the implied warranty of fitness for a particular purpose?
Triggered when a buyer releis on the seller's expertise to select a special type of good that will be used for a special purpsoe. Warrants that the goods will satisfy this special purpose.
56
How do you disclaim implied warranty of fitness for a particular purpose?
CONSPICOUS writing
57
What is a constructive condition of exchange?
One party's performance is conditioned on the other side's performance.
58
If the contract is a shiptment contract, what must the seller do to satisfy perfect delivery?
1. get the goods to a common carrier 2. make arrangments for delivery; and 3. notfiy the buyer
59
If the contract is a destination contract, what must the seller do to satisfy perfect delivery?
1. get the goods to the buyer's business; and 2. notify the buyer
60
Who bears the risk of loss under the UCC?
1. If parties dealt with in contract, contract controls 2. If either party has breached, breaching party bears risk 3. if no breach, (i) shipment contract - risk lies with buyer; (ii) destination contract - risk lies with seller 4. All other cases, ask whether seller is a merchant (i) seller is merchant --> risk of loss stays with seller until buyer receives goods (ii) not a merchant --> risk of loss movees to they buyer when seller tenders goods
61
What excuses are there that prevent a party from having to perform?
1. Impossibility and Impracticability 2. Death after contract -- IF something special about person performing K 3. Frustration of Purpose 4. Performance is Excused Because the Initial Contract has been Modified or Canceled
62
What are the common fact patters for impossibilty and impracticability?
1. performance becomes illegal after the contract is formed; 2. the subject matter of the K is destroyed; or 3. In a services contract with a "special person," the performing party dies or is incapacitated
63
What options doe s aparty have if the other party clearly and unequivocally repudiates?
1. Treat the repudiation as a breach and sue immediately for damages -- BUT if you have completed the entire perofrmance and are only waiting for payment, you cannot sue early 2. Ignore the repudiation, demand performance, and see what happens
64
Can a party retract its repudiation?
Yes, as long as the other side has not: 1. commenced a lawsuit; or 2. acted in reliance on the repudiation (by materially changing its position).
65
What is the goal of excpectation damages and how are they calculated?
Goal: put a party in the same position it would be in if the contract had been performed as promised. Calculate: compare value of performance without breach to value of performance with breach
66
What are the limits on expectation damages?
1. must be proven with reasonable certainty 2. Unforeseeable consequential damages - not recoverable unless breaching party had some reason to know about the special damages at the time of contracting 3. mitigation - breached-against party must take reasonable steps to mitigate. If they don't court will calculate as if they did.
67
What is the goal of reliance damages and how are they calculated?
Goal: to put a party in the same economic position that it would be in if the contract had never been created in the first place
68
What is the goal of restitution damages and how are they calculated?
GOal: given the plaintiff an amoutn equal to the economic benefit that the plaintiff conferred on the defendant
69
What are liquidated damages and when will the court awared them?
Liquidated damages are stated in the contract. Courts will only award if: 1. The amount of liquidated damages was reasonable at the time of contracting; 2. Actual damages from breach would be uncertain in ammount and difficult to prove
70
When is specific performance availabe?
1. real estate transactoin 2. unique goods under the UCC
71
What is the right of reclamation and when does it arise?
Arises when an unpaid seller tries to reclaim goods that were sold on credit when the buyer is insolvent. To assert this remedy: 1. The buyer is insolvent at the time of receipt of the goods 2. The seller must demand the return of goods within 10 days of receipt (or within a reasonable time if the buyer misrepresented his solvency to the seller in writing within three months before delivery; and 3. The buyer still has the goods
72
What is an assignment?
The transfer of rights under a contract.
73
What is a delegation?
The transfer of duties under a contract.
74
When can you not assign a contract's benefits?
When the contract explicitly prohibits or invalidates assignments.
75
What happens when a contract prohibits assignments but someone assigns rights?
The assigning party has breached when he makes the assignment but the third party can still recover from the guarantor.
76
What happens when a contract invalidates assignments but someone assigns rights?
The third party cannot recover because there is no power or right to assign.
77
What happens if someone assigns the same rights twice?
Depends on whether the asignee has paid consideration for the rights: 1. if rights are assigned without consideration, the assignment is generally revocable and the last assignment controls. 2. If the rights are assigned for consideratoin, then firs assignment for consideration is irrevocable and hodls
77
When is delegation acceptable?
When the contract does not prohibit delegation and the other party does not have some special interest in having a specific individual perform.
78
Is a delegatee liable for breach?
No. Unless they receive consideration from the delegating party.

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